It seems to me if Citibank issued its "guarantee" of the check then Citibank is at fault. This is different than Uncle Fred writing a $100 hot check and it not clearing-- the law firm actually did due diligence in receiving authentification from Citibank.

This could be a good one to watch.

If banks can't cover their risk by making the depositor responsible, the alternative is a 5-7 day hold on the deposit while the check actually clears.

I'm all for putting a hold on checks. In 2009, there are very few reasons for people to be writing checks for large amounts. Wire transfers are easy, immediate, and backed by the reality that the funds don't move if the funds aren't there.

It's pretty sad that in 2009 it still takes 5-7 days for a bank to verify/clear a check.

Instant check clearing. That's the answer to this bullshit. It can be done (despite the banks saying it's impossible). Checks could be held up if the numbers don't match up with the makers computerized input. The reason that this still zaps people is all of the bullshit arbitrage games that the scammers (and the banks ) are trying to play on one another.

I hope that this guy wins.
I hope that the banks are made to be more responsible for clearing these things.
I hope that people that usually fall for the Nigerian version of this,("overpayment" wired to a third party,goodbye funds) will get their heads out of their collective asses and wise up.

I hope...Ihope ...I hope...

If you goto the issuing bank, they verify the check number and amount, and the check has all the watermarks/security features, then yes, the onus is on the bank/whoever "cleared" it. It's a little fuzzy if you call, b/c you are more than likely not a banker, and not familiar w/all the security features. But if they handle the check and say it's OK, then it's on them.

Wait, what? What the heck kind of transaction was that firm doing?

If Citibank loses, this may force banks to change their policies for cashing large checks; hopefully this will result in the end of this kind of check scam. Then again, the scammers will either find another way to fool the banks or move on to an entirely different scam.

There are a lot of fees based on the lack of technology available 30-50 years ago. It used to cost $15 to process an overdraft in staff time, etc. In this day and age, since its all electronic, that's simply not the case.

Likewise, this check clearing B.S. There is no reason why checks shouldn't 1) clear within 24 hours and 2) my account should be credited from the time I deposit, not the date the check finally clears.

Bankers need to get their heads out of their collective asses.

@Snarkysnake: I think you're forgetting a few steps in the process. When banks clear checks they typically send it to a processing center and then send all those checks to the Federal Reserve to be sent back to the originating bank and then back to the Fed and then back to the original bank.

It's not as easy as punching in a number and verifing. NOw on the other hand, money orders and cashiers checks can be verifyied because they have to be registered when they are purchased.

Checks cannot be verified because they can't be registered with check number, serial number, and amount.

Was the "unconditional" representation in writing? If not, I'd say this would be a poor precident. The law firm says that some employee at Citibank verified the check. How do we know that this conversation occurred? Even if it did, why does that absolve the counterfeiter for his or her fraud? Something smells fishy here. What client of theirs paid a bill of $367 THOUSAND with a friggin cashier's check? I just sort of think that if the lawyers can be scammed by a fraudulent check that Citigroup may also have been scammed.

Or maybe I just hate lawyers!

@ndonahue: I think the issue is that they represent the check to be legit and cleared just like any good check before they actually have verified it. Then a week later claim the check was bad. It really does make no sense for a bank to represent a check as good if they do not yet know if it is or not. At the very least they should show the check as pending verification and display a warning about using the funds.

Of course that means banks will have to actively verify funds much faster and will be screwed if the check is found to be bad after they decide it is good. But technically that is the way it should be. Banks should be responsible for verifying checks and the customer should not be screwed if 3 months down the road it's found that the check was bad.

The point is that as "bankers" it is presumed they should be able to, you know, spot counterfeit checks (and cash). If a bank were to give you a $20 bill, you used it at 7-11 and the 7-11 guy said its a fake, the bank would, I assume, owe you $20.

Regardless of how the ruling goes, this lawyer may be out of his money if Citibank collapses.

Banks need to take some responsibility here. There has to be a way to confirm things like cashiers checks are paid before the funds are released. It sounds like the law firm did everything they could. They called the issuing bank to confirm the check. Unless the banks are held liable for this, they'll never have any incentive to come up with a system that really works. As it is, I'm afraid to accept cashiers checks for anything.

@gtrgod01: They verify it instantly. The waiting is to wait and see if anyone else that previously touched those funds tries to retrieve their money because they have determined the money was stolen. If the original bank doesn't find out the money was illegally withdrawn for a month, when they do know about it they will undo the transaction and each subsequent bank that touched the money must reverse their transactions. It sounds like there needs to be a limit on how long banks can go back and undo a transaction. Of course if you do that, you create a system criminals can exploit in order to keep the funds they steal.

If you call a bank to verify, they have the choice of saying, it's good, it's bad or call us back in x days. And in these days, "x" shouldn't be longer than a couple days.
Then they should be liable for what they tell customers.

They've been able to shift the costs to the consumer for far too long on this, racking up the fees all the while. It's absurd.

If the check was indeed drawn on a US bank (which it appears to have been, seeing how it was a "Citibank Official Check", the process to verify the check and the funds shouldn't have taken even 3 days. The Check 21 Act makes it possible for a bank to verify funds quite quickly (within seconds of sending off the scanned copy).

The problem lies with the fact that it was probably a fraudulent cashier's check. It's not drawn upon a customer's account, but upon an account owned by the bank- so it's harder to verify via Check 21 (and probably lies outside those rules). Banks need to do a better job of handling Cashier's Checks (both the creation and tracking of them and the verification of them).

If all Citibank said was that the check had cleared, I don't see that as an "unconditional" representation that everything was all through.

In addition, if the check is written on a valid account, and there is the appropriate amount of money in the account, it is not surprising that it might take a few days for the actual account owner to protest they are now missing money because of a counterfeit check written on the account. It could even take until the end of the month when the consumer reconciles their statement...

Somebody is going to have to take the hit for the counterfeit check, and the most logical person is the depositor. What are the alternatives?

1) The depositor's bank. Nope: they are relying on the scammer's bank's representation; they can't do anything themselves to verify the check is legit, as long as it is printed on legit stock. (Fairly trivial to counterfeit.)
2) The check's bank. Nope: if a scammer writes an apparently valid check on a valid account, how is the check's bank supposed to know?
3) The check's account holder. Certainly they can't be held responsible at all.

We do the same thing for counterfeit cash. The person that takes the financial hit is the person that gets caught trying to spend it. They can attempt to recover later from where they got it, but the immediate action is to confiscate the fake cash.

SirWired

How did the firm come up with a conterfeit check for such a huge sum? Note that the check wasn't returned due to insufficient fund or other genuine reasons.

@JGKojak:

No, you are passing on a fake $20. They will go to the bank and check all the money. The same thing would be if you got the bad money from 7-11. Unless they find bad money guess who is in trouble?

If it's a cashier's check, then, in theory, the bank represents that the funds are there. Yes?

So if you're in doubt about the check, why not just get a suitcase, walk into the issuing back's office, present the check and the suitcase, and tell them to fill 'er up?

Walk down the block to your bank. Deposit the suitcase... er, cash. The cash is in your account now, isn't it?

Can the original bank come after you now? They can't get at your funds because they don't know where you put them.

This is how we used to do real estate escrow in Central America. You'd bring a suitcase full of cash to closing.

If bankers won't adapt to the 21st century, then maybe 18th-century methods are preferable.

One problem with immediately clearing a check. What happens if someone get a hold of your account numbers and routing numbers? Can't they make a check with that information which will clear? You won't know about it until you check your statement which could be weeks later.

I think there are a couple of things going on here. First the firm needs to cover themselves with the Bar Association and second they may desire to shed light on the banking industry's practices. An IOLTA (more commonly known as an Escrow) account is used to hold funds in trust for a client. These funds do not belong to the Attorney/Firm and must be safeguarded lest the Attorney/Firm face disbarment for ethical and professional negligence. I've known more lawyers to lose their licenses over money than any other issue. The money that the bank took from the IOLTA account to cover the bad check belonged to other clients not to the law office. The bank knows what an IOLTA account is and the potential liability that they were opening the firm to but instead took money held in trust rather than taking any responsibility for verifying the check in the first place or allowing for the firm to get advice on proper (professional & ethical) procedure from the state bar association to deal with the situation. Basically IMO it's damage control and an effort to expose predatory banking practice.

Part of the problem is that checks are required to make the funds available within a certain amount of time, usually 5 days or so. Scammers are taking advantage of this. They work hard to create hard to verify checks, money orders, cashier's checks. Base it out of the country, base it on a stolen account number, base it on internet banks that appear to be real. It is possible to create a check that will look like it is clearing the system but in reality it is a fake. This gives the person cashing the check the false impression that the money is there. It is not the bank's fault. It really does fall on the person cashing the check to determine whether or not it was legit to begin with. If it is the responsibility of the bank then this will open up the floodgate for the scammers to really clean up. Everyone can now cash these fake checks and wire the money away and the banks will be the ones responsible. Making the banks responsible for the actions of those falling for scams is not a good idea.

Another reason to nationalize the banking system.

@ndonahue: Le' Sigh. Just because you dont see a need for checks doesnt mean that your situation applies to everyone else.

Fascist much?

@Corporate_guy: Even under the current system, criminals will have extracted as much of the money as they can in cash or in transfers to banks where they can retain the money. The problem is that the criminals often get theirs, it's everyone in the middle who loses out.

Of course that doesn't even apply to the OP, since this represents 2 completely distinct transactions in the banks' eyes... which is why the scam was created in the first place. They don't want the big players to HAVE to care about these scams, or something might get done to close or tighten this loophole.

@hypochondriac: The same thing that happens if someone spoofs your credit card. You should be responsible for nothing above the first $50. And, with all the online banking, there should be no excuse for checking your statement 'weeks later' unless you're out of the state/country/area-with-wifi. Hell, I can check my balances from my phone.

I agree with the rest of these posts... checks frigging suck. I write two a month, I wish I didn't have to.

@Hawkins: Banks get around that by limiting the amount of cash you can demand at any one time. They'd just say they won't give you that much cash, but you can have... a CASHIER'S CHECK! Just what you don't want in that situation.

@Wormfather is Wormfather: Fascism has nothing to do with acknowledging that cheques are an outdated form of payment. Remember when everybody used to pay with cheques at grocery stores? I do, and it was called the 80's. You'd have a tough time finding someone paying with a cheque at a grocery store today, save for people 70 years and older. Lots of grocery stores don't even accept personal cheques anymore. If they're too scared to handle cheques, why shouldn't we be? The only things I use cheques for is to set up direct withdrawal or deposit, but even then the cheque is only used because it has my account data on it.

We've advanced to a point that writing on a piece of paper just isn't secure enough for a financial transaction.

If the money came from an IOLTA account then it wasn't just the lawyerthat was scammed. A lawyer doesn't own the money in the IOLTA account - that's money that a lawyer keeps in trust for his CLIENTS. For example, a client's share of a settlement is kept in an IOLTA account until it is transferred to the client.

If the bank had to go into the firm's operating account to make up for the shortfall, then odds are this fraud drained the firm's IOLTA account completely dry. Generally, lawyers have a duty to safeguard the fund entrusted to them. I imagine the firm is probably pressing this so hard because they're fielding a lot of angry phone calls from their other clients wondering where their settlement money/unused retainer/etc is.

@JGKojak: So you want the bank to give you the money instantly but are willing to give them 24 hours to clear the check? Welcome to a scammers perfect window.

@TracyHamandEggs: When I was with Wachovia, they would credit the first 100$ of any ATM deposit immediately, with the rest when the funds were processed the next business day. It was handy, and I figure if anyone did try to scam Wachovia by, say, depositing an empty envelope, they'd lose the ability to get that immediate credit on their account.

But I agree that in the age of the internet that we're in now, and the fact that Check 21 doesn't even require the original check to be sent anywhere (digital copies work), it should be as quick and easy as a debit transaction.

@idip: The "Citibank Official Check" means it was a cashier's check. Why the person on the line verified the check when it wasn't valid is beyond me.

@Hawkins: The issuing banks don't even want to cash cheques drawn in their own branch... A few years ago I had a student renting a room from me... She kept giving me bad cheques - she'd write the date wrong, make the written and numberical money amounts different, etc... any subtle little thing to get the bank to refuse it - I eventually got a good one out of her and immediately took it to her bank, her branch, presented ID and asked them to cash it. Good God were they ever reluctant... I ended up having to talk to the manager and explain the relationship with their account holder and why I was refusing to put the cheque through my bank... because it would bounce! In the end he reluctantly cashed it "as a special favour"...

In the end I kicked that student to the curb... she just was too much trouble... hey she also thought it fun and funny to light off a stink bomb in her room that made the whole house smell like it was on fire... everyone was freaking out...

@thrid001: no it isn't

@Snarkysnake: most checks clear within 24-48 hours now. but here's the problem: what happens when i steal your account info & start writing fraudulent checks on your account? are you going to notice within that 24-48 hours? most likely not, unless you check your account daily. you actually have up to 60 days to report fraudulent activity to your bank - a protection that no doubt would disappear if instant clearing was a reality.

so, who should be liable for paying those checks? you? your bank? my bank? or the person who deposited the fake item?

the person who deposited it is the most culpable. furthermore, they are the most capable of recovering their loss thru litigation (though that's rarely possible in advanced fee scams). in some cases, they may even be an accomplice to the fraud.

if you want instant clearing, what do you propose to do about fraudulent items that aren't discovered immediately (such as in my example above)? should we eliminate the protections for account holders that experience fraudulent debits? should we increase hold times to coincide with that protection?

or should we leave things as they are & hope to god that people smarten up about who they're doing business with? folks - if you don't trust the person, don't trust the check.

@ndonahue: And this is exactly why I withdraw cash from one bank and walk it over to the bank I'm depositing into. Cash is king. And Smith and Wesson go along with me when I make such transfers.

@mrgenius:

I think you just hate lawyers. The certified funds were deposited into an escrow account. It's very common for lawyers to serve as escrow agents in real estate transactions, and they won't take a personal check to deposit in the escrow account.

Well, Citibank records ALL its calls - customer service, i-banker, whatever, so they should be able to get this through the discovery process if the plaintiff was smart enough to start the process before the recording was deleted.

@AirIntake:

How exactly would you suggest somebody buy a house, then? Bring a huge stack of hundreds to the closing?

After RTFA I can tell you exactly what happened. He deposited the check, Sterling Bank teller put an extended hold of 11 days because it exceeding 5,000 and was an out of state check. The lawyer got piss'ed, ask ed the teller if she knew who he was, and went to speak to the manager. He then told the manager he needed to wire the money out the next day, but the dollar amount of the uncollected funds exceeded the 150K threshold establsihed for safety and soundness reasons, and the manager had to call the Regional Operations Manager and have them sign off on the wire. "but it is for our third biggest lawyer client, he says the money has to go out today..." and then the and only then does money get wired out and the con complete. There ARE fricking safeguards...do not diasble them. (ok maybe I read more into than was actually there)

The check at issue purported to be a Citibank bank check, which would be drawn on Citibank's account. The plaintiff, who was not a Citibank customer, asked if such a check existed and whether it was funded. Citibank allegedly said that a check with that number was funded for that amount. The plaintiff then cashed the check and released the goods, only to find that the check was forged.

Bank checks are issued by the bank and is in the name of the bank. The payer gives Citibank the money (along with a fee) and Citibank issues a check for that amount. Certified checks are in the payer's name but the issuing bank has certified that the account has the funds, which are then segregated and rendered inaccessible by the payer. The only risk in accepting a bank or certified check is the risk of a forged instrument (or the bank going under), but you would think that if a bank guaranteed a check with that number was issued and funded, then it would be valid.

The plaintiff should have cashed the check to a Citibank branch in person.

@JustThatGuy3: at my closing, they would only take a cashier's check.

@JustThatGuy3: I believe he covered that with wire transfers, Thats how I made my down payment.

@billbobbins: Which is most likely illegal.

At least in Ohio it is, because when they finally instituted legal "concealed carry," they made businesses liable for anyone being shot on the premises. And the businesses, especially banks, don't want to get sued.

@AirIntake:

How nice for you, out here in the real world the rest of us use checks, all the time.
I'm not going to go to the effort of setting up a payment through my bank for a one time or once or twice yearly purchase from some random company. It's so much easier to write them a check, that's why they still exist.

@WendyClymene: That was the account the check was deposited into, that is the account it should be taken out of. It was a bogus client and a bogus check. The use of the account was correct by both the lawyer and the bank.

@JustThatGuy3:

Money order?

But seriously, even as much as $1 million in hundreds isn't that big. I've moved around $35k in bills before (many of them $20s). It was about the size of a brick. I bet with some work you could stuff $1 million in a couple of briefcases, and the $367k from the story would easily fit in a handbag.

For those wondering why, I owned a new business and dumb distributors around here won't take cheques, debit transfers won't cover expenses that large, and how is a new small business going to get a credit card with a $35k limit? Even if you explain you're willing to wait for the goods until the cheque clears. Weirdly enough, they were incredibly surprised at seeing a stack of cash. :D The bank was actually somewhat upset since apparently they only carry $10k in bills (no, it's not money laundering rules in this case, because the largest branch was willing to give us $25k but told us to order ahead next time) and we had to go to a couple of different branches of the bank to get the total amount in time.

And yes, I am aware that carrying over $10k in cash (now) requires you to keep the banking receipts with the cash at all times (it is a guilty until you prove yourself innocent type law...)

Tips from someone who used to carry that much cash (no longer! thank god!): Don't carry firearms, even if they are legal (for that much money there are a lot of people willing to take a bullet, and if it wasn't instantly lethal, take the gun away and shoot YOU with it). Don't act like you have any extra money on you. Don't carry the money in something you would carry money in. Personally, I used a paper takeout food bag.