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Easy check fraud technique draws scrutiny
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Non-profit targeted twice
In late April, the Urban Age Institute received an e-mail from a would-be donor, who asked for instructions on how to wire a donation into the agency's account. Not thinking anything unusual about the request, the group sent him its account numbers.
The "donor" used this information to print $10,000 worth of checks at Qchex. The checks were then sent to a woman in Snellville, Ga. The woman, who did not want her name used, said she had recently begun an online affair and cashed the checks at the behest of her new Internet boyfriend. She then used Western Union to wire the money to him in Nigeria, where he was supposedly working on assignment. Now she is out $4,000 and all her bank accounts are frozen, pending additional investigation.
The "donor" tried to cheat Urban Age a second time as well, by sending a $3,000 Qchex check drawn on a different account to the group and asking that Urban Age send $2,000 back via wire transfer. That set off alarm bells for McNamara, who went online to learn more about Qchex.
When she followed a link to register in order to find out more about the check she received, she found out her husband’s e-mail had already been used to set up an account. Then, she found out the non-profit’s bank account had been registered, too.
“The bank account number ... has already been registered and assigned to another Qchex user,” the site told her. “Please contact the existing account holder to obtain authorization for using the above account.”
McNamara said she couldn't believe that someone else had taken control of her checking account. "Oh my God," she recalled saying to herself. "This is unbelievable."
McNamara was able to close the Urban Age checking account before money was taken out of it to cover the $10,000 in checks, which had already been deposited into the Georgia woman's Bank of America account.
McNamara provided MSNBC.com with copies of the canceled checks, and a record of correspondence with Qchex. She said the U.S. Secret Service and the Marin County Sheriff's department were investigating. Secret Service spokesman Jonathan Cherry said he couldn't comment on any ongoing investigations. A Marin County detective confirmed he was investigating the case.
Fraudulent checks often go unnoticed
The donation check ultimately received by Urban Age had a statement where the authorized signature normally appears. "Signature not required," it read. "Your depositor has authorized this payment to payee."
Meanwhile, the checks drawn against Urban Age's accounts included the name "Edward William," and offered an address in Van Nuys, Calif., hundreds of miles from the institute's real address. No matter — the banks that cash such checks don't attempt to verify that the account number matches the name on the account.
"Banks are automated to the point where that (check) can go through the system and never be examined by a human being," said John Burnett, associate editor of Bankersonline.com, an online newsletter and consulting firm. "The bank is just hedging its bets. If the losses are not for as much money as it would cost to hire people to look at every check, it's a good bet."
No one knows how many demand drafts are written each year, because the checks are processed just like regular, signed checks, said Jack Walton, an associate director at the Federal Reserve who specializes in bank operations and payment systems. And no one knows how commonly they are used for fraud.
But the attorneys general letter to the Fed said one community bank surveyed demand drafts and found 73 percent to be fraudulent.
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