Who is liable in cases of wire fraud? Costly lawsuits signal interesting trends

Key takeaways

• The Electronic Fund Transfer Act (EFTA) and Uniform Commercial Code (UCC) have historically shielded banks from liability in wire fraud cases.
• Recent lawsuits show courts may be more willing to hold banks accountable when they ignore security protocols or fail to flag suspicious activity.
• Title companies and law firms face increasing liability, with wire fraud-related lawsuits against title companies rising 127% in 2023.
• Implementing comprehensive fraud prevention measures is essential for both financial institutions and businesses handling wire transfers.

The growing impact of wire fraud

"I remember the exact moment I got that first call from my office saying, 'We wired a payoff yesterday, and the lender just called us and said they didn't receive the wire.'" recalls Sarah, a title agent with over 20 years of experience.

Over one summer, her company fell victim to three separate wire fraud attacks.

Fraudsters used address spoofing technique and then business email compromise to pose as legitimate parties, sending false payoff instructions to her team. 

Despite having verification protocols, miscommunications allowed the funds to be stolen.

"I wasn't sleeping. I wasn't eating. [...] and now, my whole business was on the line. It was chaos everywhere."

Although Sarah eventually recovered a significant portion of her funds with help from CertifID Funds Recovery service, the FBI IC3, and federal law enforcement, she still faced a shortfall of $168,000 and months of trauma.

Sarah's nightmare is becoming increasingly common, raising critical questions:

• Who is financially responsible for negligence in cases like this?
• Who had the power to disrupt the cybercriminals before they got away with massive fraud?
• What steps should they have taken?

The answers to these questions should drive any business' fraud prevention and risk mitigation strategy. 

Let's examine the latest in legal precedent and how businesses can protect their clients and assets in the current liability landscape.

Policy governing liability in wire fraud cases

The law has historically protected banks from accountability in cases of wire fraud. 

These protections primarily come from the Electronic Fund Transfer Act of 1978 (EFTA) and Section 4A of the Uniform Commercial Code (“UCC”).

Electronic Fund Transfer Act (EFTA)

The EFTA does require banks to reimburse consumers for certain categories of “unauthorized” and “incorrect” transfers, as long as they notify their banks quickly.

But most victims don’t discover the fraud until it’s too late.

It’s because fraudsters now exploit advances in instant payment technology to move money at lightning speed into untraceable accounts. 

Many criminals quickly convert stolen funds into cryptocurrency, making the money virtually untraceable and nearly impossible to recover once converted.

Also, after only a day or two, banks cannot freeze accounts or reverse the wire transfers, and victims can’t invoke the EFTA.

The EFTA originated in the 1970s, when financial institutions were the only ones who could execute wire transfers. 

While the EFTA does hold banks responsible for committing certain errors when they are in charge of a transfer, it doesn’t recognize them as the accountable party when the consumer, or someone impersonating them, is initiating the transfer.

With the proliferation of online banking tools and instant payment apps like Zelle and Venmo, consumers are increasingly able to move their own money. 

Similarly, in real estate transactions, attorneys and title companies may be moving money on a client’s behalf. 

But the EFTA still sees the consumer, or the person abusing their login credentials, as the responsible party, even if the transfer took place on the bank’s platform or involved the bank’s staff. 

The Uniform Commercial Code (UCC)

The Uniform Commercial Code (“UCC”) also governs liability in wire fraud cases, this time in relation to contract law. 

According to the UCC, a bank may be liable if it fails to adhere to wire instructions, but in cases of wire transfer fraud, it is typically following the instructions to the letter.

So it has either received fraudulent instructions directly from an impersonator or received wiring instructions from its own banking client who was given deceptive instructions. 

Banks do have a legal obligation to their customers, but that 'duty of care' doesn't extend to customers of other banks who unwittingly move all their money to a scammer's bank account.

Victims can’t hold the bank responsible for aiding and abetting wire fraud unless they can prove that the bank had “actual knowledge” of illicit activity. 

Since so many transactions are automated or facilitated by AI and other technology, banks can claim that they didn’t have “actual knowledge” and avoid liability.

These policies have left the financial burden of wire fraud squarely on the shoulders of victims.

Businesses haven’t been able to count on their banks to reimburse or recover losses from wire fraud, so executives have faced the choice between adopting fraud prevention tools or absorbing the risks and losses from cyber attacks.

Bank responsibility in wire fraud

As wire fraud continues to rise, victims often ask whether their financial institutions should bear responsibility. 

After all, banks possess fraud detection systems and are gatekeepers of the financial system. However, the legal landscape around bank liability remains complex and often frustrating for fraud victims.

Let’s see common questions and answers whether wire transfer can be the bank's responsibility.

Is wire transfer fraud the bank’s responsibility?

In most cases, no. 

Banks are typically protected by both the EFTA and UCC when fraudulent wire transfers occur.

However, there are some circumstances where banks may be held liable:

• When they failed to follow their own security protocols. For example, a bank ignored its multi-factor authentication policy and processed a $800,000 fraudulent wire transfer, later deemed negligent in court.
• When they ignore obvious red flags that would indicate fraudulent activity. Think a customer’s account, which typically handled small transactions, suddenly initiated a $2 million international wire. The bank failed to flag or verify the transaction, leading to irreversible fraud losses.
• When they don't properly train employees to respond to fraud reports. Imagine a bank teller dismissed a senior customer's concern about a suspicious wire request. Due to improper training, the bank failed to intervene, resulting in $400,000 stolen through a scam.
• When state consumer protection laws create additional responsibilities. For example, under California’s consumer protection laws, a bank was sued for failing to investigate a fraud report properly. The court ruled that the bank had to reimburse $500,000 in stolen funds. 

Can you sue a bank for negligence?

Yes, you can sue a bank for negligence related to wire fraud, though success depends on specific circumstances and evidence. 

Courts generally hold banks to a standard of "reasonable care" in processing wire transfers.

The process requires careful preparation and documentation. Success depends on several factors:

• Strength of evidence showing bank's negligence.
• Timeliness of fraud reporting.
• Documentation of communications.
• Applicable state laws and regulations.

An interesting story of a successful resolution emerged in January 2025, when Wells Fargo Bank agreed to pay more than $1.1 million to resolve claims that it assisted jailed ex-attorney Chris Pettit in defrauding his clients of tens of millions of dollars.

The bankruptcy trustee discovered that Pettit had maintained several accounts at Wells Fargo, including an attorney trust account in New Mexico, despite not being licensed to practice law there. At least $33 million in losses were traced through this account.

While Wells Fargo did not admit liability in the settlement, the case demonstrates that financial institutions may choose to settle rather than face lengthy litigation when evidence suggests they failed to implement proper oversight of suspicious accounts.

At the same time, each case is different. As we saw, in most wire fraud cases when victims send money to fraudsters themselves, it's extremely hard to hold the bank liable.

If you believe your situation justifies legal action, however, there are structured steps you can take to build your case.

Potential legal steps when suing a bank

Note: The information provided here is educational only and not legal advice. Before taking legal action against any financial institution, consult with a qualified attorney who specializes in banking law.

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1. Assess the situation thoroughly

Begin by gathering all evidence related to the fraudulent transaction:

• Collect all transaction records, confirmation emails, and receipts.
• Document your communication history with the bank.
• Create a timeline showing when the fraud occurred, when you discovered it, and when you reported it.
• Review your banking agreements to understand the bank's security obligations.

Understanding the exact mechanism of the fraud will help identify which laws apply to your situation and whether the bank failed to follow established protocols.

2. Attempt resolution before litigation

Litigation should be your last resort. First, try these steps:

• Contact your bank's fraud department immediately.
• File a formal complaint and request an investigation.
• Keep detailed records of all communications with bank representatives.
• Escalate your complaint to higher management levels if necessary.

If direct communication with the bank proves unsuccessful, consider filing complaints with regulatory agencies like the Consumer Financial Protection Bureau (CFPB) or your state's banking authority. 

These agencies can sometimes mediate disputes between customers and financial institutions.

3. Prepare and file your lawsuit

When pre-litigation efforts fail, it's time to consider legal action.

Consult with an attorney who specializes in banking law or financial fraud cases. They'll help identify the specific legal grounds for your lawsuit, which might include negligence, breach of contract, or violations of banking regulations.

Your attorney will draft a complaint outlining the facts of your case, the legal basis for the bank's liability, and the damages you're seeking. 

They'll also help determine whether to file in state or federal court based on your specific situation.

4. Navigate the discovery and trial process

Once your lawsuit is filed:

• Both sides exchange information during the discovery phase.
• Your legal team may engage expert witnesses to explain banking standards.
• Your attorney will present evidence showing the bank's liability.
• Settlement negotiations may occur at any point in the process.

Most cases settle before trial, as banks often prefer to avoid the publicity and unpredictable outcomes of a court judgment.

Potential outcomes

If successful, your lawsuit may result in:

• Reimbursement for the stolen funds.
• Additional damages for costs incurred due to the fraud.
• Changes to the bank's security practices.
• A settlement agreement resolving the dispute.

While legal action against banks can yield positive results, it's crucial to understand the real-world challenges you'll face. Before pursuing litigation, consider these significant obstacles that could impact your case.

Challenges to consider

Before proceeding with litigation, be aware of these potential challenges:

• Legal costs can be substantial, including attorney fees and court costs.
• Cases often take months or years to resolve.
• Proving the bank's negligence can be difficult, especially with sophisticated fraud.
• Litigation may affect your relationship with banking institutions.

While well-documented cases with clear evidence of bank negligence can succeed, the process requires patience, resources, and strong legal representation.

Emerging policy and landmark lawsuits

The latest moves from lawmakers indicate that policies might be shifting, forcing banks to play a bigger part in disrupting wire fraud, or pay the price. 

The Senate hosted a public hearing to gather testimony about protecting businesses and consumers from wire fraud. 

Congress has also acted quickly to propose new legislation that would regulate the use of artificial intelligence (AI) for impersonation scams. 

The increased oversight could eventually extend to banks, which can use AI and machine learning to flag suspicious transactions. 

Suing banks for wire transfer fraud: Landmark lawsuits

Judges have historically sided with banks in landmark lawsuits claiming negligence, but several new wire fraud cases indicate changing sentiment and potential new precedents in a digital-first era.

PNC unauthorized wire transfer lawsuit

PNC bank is facing a suit for the $1.6 million stolen from a corporate client. 

The plaintiffs claim that PNC bank failed to comply with basic multi-factor authentication practices for approving the wire transfers. 

Multiple employees were supposed to have provided security tokens to approve such transactions. 

The victims also allege that when they reported the fraud, the bank’s employee wasn’t trained to freeze the account or reverse the transfer.

JP Morgan Chase wire transfer fraud recovery process

Another law firm just announced a suit against JP Morgan Chase for failing to raise red flags for a client who ultimately lost $16 million across 35 fraudulent wire transfers. 

The victim in this case had no history of transfers exceeding $100,000, yet the bank allowed back-to-back transfers of $500,000 without instituting a hold for suspicious activity. 

This case is in addition to the suit they’re already facing for an incredible $272 million stolen from one manufacturing client through privilege misuse and wire fraud. 

Only $100 million could be recovered.

Citibank negligence claims

The New York Attorney General has just thrown their hat in the ring with a negligence suit against Citibank. 

Both Citibank and JP Morgan have filed for dismissals. 

While the judge agreed to dismiss parts of the case against JP Morgan, they granted a jury trial based on a provision that requires banks to refund unauthorized payments.

Major banks are beginning to face increased pressure from legislators and consumers.

Moreover, some scholars agree that there is a credible legal justification for reinterpreting the Electronic Funds Transfer Act (EFTA) so that banks are liable for wire fraud incidents that are currently ascribed only to consumers. 

The law requires reimbursements for “unauthorized and incorrect transfers,” and litigators could argue that accidentally sending funds to someone with false credentials is “unauthorized” or “incorrect.”

Nevertheless, banks continue to cite the EFTA and UCC in their defense. 

HSBC wire fraud liability case

For example, a judge granted a dismissal in a recent wire fraud case against HSBC, even though the bank failed to follow its own cyber security procedures and disregarded enough red flags to rival the inventory in Pamplona.

The bank maintained that all the signs of suspicious activity never amounted to "actual knowledge" of fraud or grounds for liability.

Business leaders and consumer advocates are losing patience with these excuses and making their grievances known to their representatives in Congress. 

The Consumer Financial Protection Bureau is facing increasing pressure from a growing community of wire fraud victims to hold banks more accountable, though they would almost certainly face lawsuits from the banking lobby if they moved to increase banks' liability.

CertifID's State of Wire Fraud 2025 report reveals this sentiment is shared broadly among consumers:

• 86% of consumers believe financial institutions should bear greater responsibility for preventing wire fraud
• 72% would switch to banks offering stronger security measures
• 79% would pay more to work with companies that prioritize wire fraud security
• Wire fraud losses reported to the FBI exceeded $12.5 billion in 2023, with real estate wire fraud accounting for approximately $500 million

Even if the law doesn't force banks to raise red flags, victims argue that banks at least have an ethical obligation to use the considerable technology at their disposal to protect their customers. 

If banks can put temporary holds on credit cards for unexpected purchases at fast food joints, then surely they can suspend multiple million-dollar transfers pending authentication.

Nevertheless, while this legal battle continues, title and law companies should take proactive measures by educating customers about wire fraud and implementing robust wire fraud protection solutions.

How title companies and law firms are impacted by changing liability standards

As liability standards evolve, title companies and law firms face increasing responsibility to protect their clients from wire fraud. 

The financial and reputational costs of failing to implement adequate security measures are growing.

For title companies: Rising legal and financial stakes

Title companies find themselves targets of costly lawsuits when wire fraud occurs during real estate transactions. 

Courts are holding them to significantly higher standards of care when handling sensitive financial information.

According to the 2024 Sued for Wire Fraud Report, title companies faced an alarming 127% increase in wire fraud-related lawsuits in 2023 compared to the previous year. 

The average settlement amount exceeded $450,000, not including substantial legal fees and long-term reputational damage that can devastate a business.

Notable cases highlight this growing liability trend:

• In Hoffman v. Atlas Title, the court allowed negligence and breach of fiduciary duty claims to proceed against a title company that sent unencrypted wire instructions despite previous security breaches, resulting in intercepted communications and a loss of nearly $290,000.
• In the case of attorney Nicole Quinn, she narrowly avoided significant liability when she caught a $240,000 fraudulent transfer just in time. As she described the experience: "I went into full panic mode. I called everyone... the state bar... the FBI... the police... I think they could all hear in my voice how distraught I was."

Title companies must now implement multi-layered security protocols, including:

• Secure communication channels outside of email.
• Secure wire prevention software for wire instruction changes.
• Comprehensive staff training on fraud prevention best practices.
• Secure ID verification for all the transactions.
• Documentation of all verification efforts.
• Regular security audits and updates.

For law firms: Heightened fiduciary responsibilities

Attorneys handling real estate closings and other transactions involving large sums of money face even more intense scrutiny. 

Your fiduciary duties create an especially high standard of care that courts are increasingly enforcing through judgments.

Law firms managing IOLTA and escrow accounts must exercise particular caution. 

According to our 2024 Sued for Wire Fraud Report, in Wheeler v. Clear Title, the court emphasized that escrow agents have specific duties to safeguard funds and verify payment instructions.

This highlights the growing expectations for attorneys and title professionals to implement robust verification processes.

Other significant cases reveal a pattern of increasing liability:

• In Otto v. Catrow Law, the court emphasized that attorneys have a burden to prove both the loss and its causal connection to potential negligence. While this case was dismissed due to inadequate expert testimony, it highlights the importance of having qualified experts who can speak to the standard of care in the specific jurisdiction.
• In Authentic Title Services v. Greenwich Insurance, an attorney fell victim to an email spoofing scam that resulted in the transfer of $480,750.96 in real estate loan funds to a fraudulent account. The attorney's insurance claim was denied, with the court finding no ambiguity in the policy exclusion stating that coverage does not extend to "claims related to stolen funds."

State bar associations are actively establishing new standards:

• In New York, the state bar now recommends specific cybersecurity measures for attorneys handling wire transfers.
• Florida's bar association issued guidance making attorneys responsible for verifying wire instructions through multiple channels
• California's bar requires attorneys to maintain competence in technology, including understanding risks associated with electronic funds transfers
• The Texas bar have issued ethics opinions specifically addressing attorney responsibilities in preventing wire fraud

Legal experts predict this trend will continue, with courts increasingly ruling that both title companies and law firms have an affirmative duty to protect clients from wire fraud. 

Sue bank for wire transfer: summary

The dramatic stories of millions gone missing overnight aren't scenes from fictional heist movies, or even particularly unique occurrences.

While lawmakers debate expanding liability for banks, fraudsters are exploiting the legal loopholes, claiming more and more victims who may never see their money back.

Their exploits cost victims $12.5 billion in 2023 alone, according to the FBI’s annual internet crimes report.

It's in the best interest of banks, business owners, and consumers to prioritize fraud prevention.

Regardless of where lawmakers land on liability, investing in cyber security delivers a high return on investment compared to costly, and potentially embarrassing, litigation. 

Both banks and business owners can take these wire fraud prevention best practices to avoid the missteps that lead to lawsuits and losses.

So what's the best way to protect yourself?

Get insurance for your wire transfers to prevent fraud, and if preventive measures aren't enough, reach out to the CertifID team to recover stolen funds.