In Inside Courts, retired judge Tom Hodson explains the complexities of the law and legal cases, helping you understand what’s at stake — and how it affects you.
The City of Athens has been the victim of a cyber scam and currently has lost $721,976.26, according to a civil lawsuit filed Dec. 4 in the Athens County Common Pleas Court.
The theft occurred on November 18 and is now subject to both a criminal investigation and a civil action filed in court. State and federal law enforcement agencies are searching for the cyber criminals who took the money; simultaneously, Athens is pursuing civil remedies to try to recover the missing funds.
The potential criminal case could punish the thieves for wrongdoing with potential prison time while the civil action attempts to find and return the funds.
While the details of the criminal action are confidential at this point, I will break down the unique civil action — which, frankly, has little chance for success.
Background
A Cleveland attorney filed a civil case on the city’s behalf against unknown parties for “unjust enrichment, expedited accounting, and injunctive relief.”
The attorney, Adam C. Smith, is a member of the national law firm of McDonald Hopkins. He is part of the firm’s Data Privacy and Cybersecurity team of 49 lawyers.
According to the McDonald Hopkins website, this team of attorneys has “counseled clients in nearly every industry through more than 15,000 data breaches and privacy incidents – 2,300 of those in the last year alone…”
In the complaint Smith filed, Athens claims that on Nov. 18, “certain perpetrators orchestrated a scam utilizing electronic communications and unlawfully gained access to monies from CITY’S bank account that were intended to pay valid invoices from its contractor.”
An unknown person or persons started communicating with the city via email impersonating the city’s contractor Pepper Construction.
Pretending to be a representative of the contractor, the thieves filled out an electronic payment authorization form provided by the city and requested payment of nearly three quarters of a million dollars for an invoice.
The name and fraudulent email address was for EGrootenhuis@pepperconstrcution.com. The normal email address for Pepper Construction is “@pepperconstruction.com.” Note the transposition of the “c” and “u” in the fraudulent address.
Relying on the fraudulent emails and the payment instructions, the city effectuated the payment from the city’s J. P. Morgan Chase account to a bank account at the Republic Bank and Trust in Louisville, Kentucky.
The lawsuit claims that Athens then discovered it had been defrauded and the “unknown perpetrators” had received the transfer of funds. The city then took immediate action to recall the transfer and notified authorities.
The civil complaint, however, does not state when Athens discovered that the transfer was based on a fraudulent invoice and fraudulent emails.
The lawsuit by the city is to “mitigate the damages.” That means that the city is doing everything legally to try to find the missing funds and return them to the city’s coffers. However, the chances of success are questionable.
If there is any insurance which might repay the city for the loss, often the insurance policy would require the victim to do everything legally possible to reclaim the money and to lower the eventual claim.
City officials, because of the ongoing criminal investigation, will not talk about the details of the civil case or explain why it was filed.
Parties to the lawsuit
The lawsuit filed by Athens lists two defendants: “John Doe and Jane Doe.”
Real names are not used because at the time of filing the civil complaint, the city does not know the real names of the perpetrators and the matter is still under criminal investigation.
If the real names are even identified, then they will be substituted for the John and Jane Doe.
Also, no defendant addresses are included in the complaint. This is important because to move forward, the complaint must be served on (delivered to) the defendants along with a summons giving the defendants instructions on how to respond to the complaint.
Currently, there are no attempts to notify the defendants because the defendants are unknown. Nothing appears on the court’s docket (listing of case activity) other the filing of the complaint.
Lawsuit claims
Unjust enrichment
First, Athens claims that the perpetrators received “unjust enrichment.” This means that the defendants received a benefit (the nearly $722,000) that they were not entitled to keep. For the defendants to keep the benefits of their fraudulent activity would be “inequitable and unjust.”
Expedited accounting
This claim demands the defendants, once identified, give an accounting of the whereabouts of all funds illegally taken. The request also wants a full accounting of all funds associated with the Louisville bank account where the city’s money was transferred.
Injunctive relief
The city is asking the Court to freeze all funds in the account where the city’s money was deposited to prohibit fraudulent and unlawful use of the money by the thieves.
The catch here is that there is no assertion that the city’s money actually remains in the Louisville account.
In fact, it is highly unlikely that the money is still there. My legal experience with computer scammers is that they move the money with rapid speed once it is in their possession. Often, cyber criminals move the money multiple times in rapid succession to cloud the money’s trail.
What’s next
The case has been assigned to Athens County Common Pleas Judge George McCarthy to handle. At this point, the civil case is on hold while the criminal investigation proceeds and attempts to identify the perpetrators.
If the thieves are identified, then the complaint will be amended to add their names and last known addresses. The complaint and summons will be served on the defendants and the case may proceed in a normal course.
If they are not identified, ultimately the city’s lawsuit, as it now stands, will be dismissed.
Until then, we wait, and the city is out nearly $722,000 at the same time Athens City Council is considering putting an income tax increase on the ballot.
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