The Bank Account That Sprang a Leak

[R.A. Hettinga]

"Burning Chrome" meets "Burning Platinum"?

In this case, even a 60-day actual settlement time on a stated three-
day NACHA transaction couldn't help this gentleman.


As irrevocable transaction settlement time trends to instantaneity,
the more dangerous book-entry settlement becomes.

The *least* an instantaneous book-entry transaction risks is the value
of the account performing the transaction. The *most* it risks is all
the assets of the identity controlling that account.

An instantaneous digital bearer transaction would risk, at most, the
value of transaction alone.


Cheers,
RAH
--------

<http://www.nytimes.com/2008/08/30/business/yourmoney/30theft.html?pagewanted
=print
 >

New York Times

August 30, 2008

The Bank Account That Sprang a Leak
By DIANA B. HENRIQUES

They are a staple of consumer-complaint hotlines and Web sites:
anguished tales about money stolen electronically from bank accounts,
about unhelpful bank tellers and, finally, about unreimbursed losses.

But surely customers of the elite private banking operation at
JPMorgan Chase, serving only the banks wealthiest clients, are safe
from such problems, right?

Wrong, says Guy Wyser-Pratte, an activist investor on Wall Street for
more than 40 years who uses his hedge funds war chest of roughly $500
million to wage takeover fights and proxy battles in the United States
and Europe.

In May, Mr. Wyser-Pratte learned that someone had siphoned nearly
$300,000 from his personal account at the private bank through many
small electronic transfers over a 15-month period.

Then he was told by the bank that he could stop the theft only by
closing his account and opening a new one  an enormous hassle, he
said. And finally, JPMorgan Chase told him that the bank would cover
only $50,000 of his losses.

While this is an unfortunate situation, we believe our response has
been entirely appropriate, said Mary Sedarat, a spokeswoman for the
private banking service at JPMorgan Chase.

Mr. Wyser-Pratte emphatically disagrees. They never should have
approved that first transfer, he said.

The wealthy financier is getting a taste of what the rest of us have
to deal with all the time, said Gail Hillebrand, the senior staff
lawyer for Consumers Union in San Francisco.

That sour taste is called automated clearing house fraud, theft
involving unauthorized electronic transfers through the automated
networks of the circulatory systems that connect the worlds bank
accounts.

When a consumer writes a check, the merchant that accepts it is
entitled to have the specified amount taken from the customers bank
account and sent electronically to the merchants account.

But once someone has certain routing numbers for a customers account,
fraudulent transfers become possible unless the customer carefully
scrutinizes all of the transactions on the monthly account statement.

If the consumer reports a clearly unauthorized transaction within 60
days, federal banking rules require the bank to cover the loss, Ms.
Hillebrand said. If not, and if the bank informed the customer in
advance about the 60-day deadline, the bank has no liability.

Consumer advocates agree that online purchases and automatic bill-
paying arrangements have greatly complicated the task of catching
fraudulent transfers  particularly small ones  from busy accounts.

And Mr. Wyser-Prattes personal account was as busy as his life. Louis
Morin Jr., his chief operating officer, said his boss splits his time
between Paris and New York and travels almost constantly. He is not
someone who writes 30 checks a month  more like thousands a month,
Mr. Morin said.

And a retail bank statement is kindergarten arithmetic compared with
the monthly statement for a private banking client. Indeed, Mr. Wyser-
Pratte said that the statements have become so complicated not even a
Wall Street veteran like himself could detect the continuing theft.

I kept complaining that the banks records showed I was overdrawn
when I shouldnt be, he said. Each time, he was assured that the
statement was accurate, even if he could not decipher it.

As for the 60-day deadline for reporting a theft, I never knew about
it, he said. I opened that account eons ago, it must be 20 or 25
years now. I dont think I ever signed anything agreeing to that
policy.

It all sounds sadly familiar to Ms. Hillebrand, who said all bank
customers  even wealthy private banking customers  must know their
rights and watch their monthly statements. It is easier than ever for
people to steal money from your account, she said.

Mr. Wyser-Pratte has filed a complaint with the New York City Police
Department. A detective working on the case confirmed that an
investigation is under way.

According to Mr. Morin, the money was sucked out of Mr. Wyser-Prattes
personal account through dozens of unauthorized purchases of computer
equipment from Dell. But so far, police investigators have been able
to trace only a single $1,600 shipment of equipment, delivered to a
nonexistent business in Brooklyn.

Mr. Wyser-Pratte, understandably eager to solve the mystery,
complained that neither Dell nor his bankers were giving the police
enough help.
Dell is cooperating fully with the police, said Jess Blackburn, a
company spokesman. We have been very responsive to all requests for
information.
JPMorgan Chase is also cooperating fully, said Ms. Sedarat, the bank
spokeswoman. This is an important reminder that clients are
responsible for monitoring activity in their accounts.

The banks private banking clients probably did not need another
reminder so soon. On July 29, federal authorities in Manhattan
announced the indictment and arrest of Hernan E. Arbizu, who was a
vice president in the private banks Latin American unit and who is
accused of embezzling more than $5 million from his private banking
clients.

Ms. Sedarat said that case was completely unrelated to Mr. Wyser-
Prattes loss.