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Small Biz Wins $600K in Cybercrime Settlement

By Andrew Chow, Esq. on June 27, 2012 | Last updated on March 21, 2019

A small business hit by cybercrime fraud has won a $600,000 settlement in a case that could have set a new legal precedent for small businesses. But no longer.

The case involved Village View Escrow, a small business in Redondo Beach, Calif., that holds funds for real-estate deals. Cybercriminals stole about $466,000 via online wire transfers from the company's bank account in March 2010, PCWorld reports.

Village View sued its bank over the cybertheft. But because of the Uniform Commercial Code, the company's lawyers first had to persuade a judge to allow the lawsuit to proceed.

Under the UCC, a federal code for merchants that's been adopted by most states including California, a victim of wire transfer fraud can only recover the amount of money stolen, plus interest. The UCC also does not allow claims of negligence or fraud, according to PCWorld.

But Village View sued Professional Business Bank for fraud anyway. The bank misrepresented its online security as "state-of-the-art," when it used an unsophisticated "user ID and password" system instead of more-secure multifactor authentication, Village View's lawsuit claimed.

Somehow, Village View's lawyers convinced a judge to allow the bank-fraud allegation to proceed, despite the UCC's general prohibition against such claims. That made a jury trial, and additional damages, a real possibility.

"To be quite frank, it was an opportunity to get very creative and to work alongside courts in developing how the case should proceed," one of Village View's lawyers told PCWorld. "This is a new and emerging area of law."

Perhaps sensing that a new precedent could be set regarding the UCC and fraud allegations, Professional Business Bank settled the case for $600,000 -- more than the amount Village View had lost in the cybercrime fraud.

The bottom line for small businesses: Consider professional online-security consulting and look carefully at your banking contract, which could limit your recovery in a dispute, Village View Escrow's lawyer said. It's also wise to consult a small business attorney if you're hoping to recover damages from cybercrime.

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