Fraudulent Wire Transfer: A Constant Threat
It shouldn’t need to be said, but here we go. Wire transfer fraud remains a significant risk to businesses and legal teams alike. Already a successful scheme, AI enhancements to the practice seem sure to make the cons more convincing. As a result, the legal and financial exposure associated with the crimes will only increase. Here’s a case in point. A new analysis from Proskauer, a law firm recognized for its over 20 years of leadership in privacy and cybersecurity law, reviews a recent decision that sets a new benchmark in financial fraud cases. Although the ruling does not address cyber insurance, it raises significant concerns about how such scams may impact coverage decisions in the future.
California Court Rules in Favor of Fraud Victim
On May 27, 2025, the California Court of Appeal, Fourth Appellate District, affirmed a lower court’s ruling that held defendants fully liable for a $475,000 wire transfer lost to fraud. In Thomas v. Corbyn Restaurant Development Corp., scammers impersonated the plaintiff’s legal team. They tricked defense counsel into wiring settlement funds to a fraudulent account.
Settlement Payment Terms Breached by Scam
The parties had agreed to a $475,000 settlement to be paid by check. However, just days after the agreement, imposters emailed defense counsel with new wire instructions, falsely claiming to represent the plaintiff’s law firm. The cybercrime scam included a follow-up phone call from a fake “Head of Finance.” Trusting this communication, defense counsel wired the funds—only to later discover the fraud.
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Court Applies UCC “Imposter Rule” in Absence of State Law
With no clear California precedent, the court turned to federal case law and the Uniform Commercial Code’s “Imposter Rule.” This legal principle states that the party best positioned to prevent the fraud should bear the loss. Both the trial and appellate courts found that defense counsel failed to follow standard verification procedures.
Ignored Warning Signs Lead to Judgment
The court noted multiple warning signs. The requested payment method differed from the one agreed upon. Defense counsel did not verify the new instructions and failed to recognize inconsistencies in the communication. These oversights led the court to assign liability to the defendants, ordering them to pay the plaintiff the full settlement amount again.
Implications for Wire Transfer Fraud Response and Insurance
Though not explicitly discussed in the ruling, the case has important implications for cyber insurance. Insurers may view such failures to verify payment changes as negligence, which could result in denied claims. Businesses will need to demonstrate preventive controls and due diligence if seeking coverage for similar losses.
Fraud Prevention Must Evolve with Threats
The case also highlights the growing threat of AI-powered scams, including deepfake voice impersonations. As financial fraud cases like this persist, firms and companies must adopt safeguards that verify financial transactions. Steps such as training staff on identifying wire transfer fraud tactics and continuously testing internal protocols must be viewed as the new “smoke detectors.” In particular, a simple phone confirmation of any change in payment method remains one of the most effective safeguards against fraud. As the Court of Appeal found the warning signs were there, “there were red flags that should have alerted [Defendants’] counsel to the fraudulent scheme.”
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