28 Oct No Comments Remik Expert Matters

Facts:  The plaintiff was a small business customer of the defendant bank that had enrolled in the bank’s telephone wire transfer service.  The bank’s wire transfer agreement provided that all telephonic requests for wire transfers would be authenticated by means of a personal identification number (PIN) given to the customer along with a voiceprint recording of the authorized representatives of the customer.  At the time of each telephonic wire transfer request, the caller would be obligated to provide the PIN and state certain words.  The PIN given would be compared to the PIN of record for that customer and the words stated by the customer would be compared to a voiceprint recording of the same words to determine whether or not the voice “matched.”  However, at the time, the bank was not using the voiceprint methodology due to accuracy issues with the technology.  In November 2015, someone telephoned the bank on four occasions, provided the correct PIN, and instructed the bank to initiate a wire transfer on each occasion – two to domestic banks and two to a bank in China.  Shortly thereafter, the customer notified the bank that the four wire transfers were unauthorized and demanded that its account be re-credited for the amounts of the wires.  The bank refused claiming that the wire transfers were authenticated pursuant to a commercially reasonable security procedure.  The customer then commenced an arbitration proceeding against the bank in accordance with the bank’s deposit account agreement.

Client:  The plaintiff customer.

Subject of Expert Report:  The Expert Report addressed the following issues:

  1. Whether or not the security procedure used in connection with the four unauthorized wire transfers that required the caller to only provide a Personal Identification Number (PIN) was the “agreed-upon” security procedure as set forth in the bank’s wire transfer agreement.
  2. Whether the use of a “PIN only” security procedure was commercially reasonable.
  3. Whether or not the “PIN only” security procedure was followed with respect to the four unauthorized wire transfers;
  4. Whether or not the “PIN only” security procedure selected by the bank violated the obligation of the bank to act in good faith towards its customers, and
  5. Whether or not the bank should have detected the suspicious nature of the two unauthorized wire transfers sent to China and prevented the transfer of the funds.

 Outcome:  The parties agreed to resolve the matter on written submissions to the arbitrator.  The outcome was not disclosed.