Several months ago we were contacted by the representative of a potential client looking to purchase a 50-meter yacht. The representative reached out to us by phone and email, and wanted to put a substantial amount of money into escrow with our firm (retainer plus deposit against the vessel). After a substantial delay, we received a cashier's check from a Canadian bank made out to my partner individually (as opposed to our escrow account) and for more than the requested amount. The red flags went up- and sure enough we learned that this same representative had reached out to other lawyers and brokers in the industry. While this scheme was targeted towards us as attorneys- it could easily have been against any broker who holds funds in escrow for clients.
The real estate industry has suffered with fraud and identity theft schemes for years, but these scams have now officially arrived in the boating industry. Awareness of the potential for fraud is critical for both listing and selling brokers to protect their clients from potential losses and themselves from liability. The following are a few of the latest scams, red flags, and tips for prevention.
The Cashier's Check Scam- The scam we encountered has been common in real estate for years. The buyer sends a cashier's check to pay the boat's purchase price, often for an amount exceeding the asking price, requesting that the overage be used to pay transportation, boat related expenses, or even be returned to him via wire transfer. Banks often immediately provisionally credit funds based on cashier's checks for good clients. Weeks later, however, if the bank discovers that the cashier's check is forged, the bank will debit those funds upon return of the dishonored check. In the meantime, the sale has gone through, the boat has been delivered, excess funds have been sent to a third party, and you are liable to the client and/or bank for the full amount of the worthless check.
The scam typically involves a foreign purchaser, who gives a lengthy explanation about why he/she is sending additional funds, often without negotiating the price of the boat (another red flag, as who doesn't negotiate over price?). The "customer's" email address (or that of its purported money manager) does not show a conventional institutional email address.
To protect yourself and your seller, ask buyers for their contact information, and verify their information. Fraudsters are generally reluctant to provide such details, while a legitimate buyer is not. Require payment by wire transfer rather than a cashier's check to eliminate the risk of a bounced check.
Disbursement of Funds to Fewer than all Owners - In this scenario, the boat is jointly owned by individuals. One owner requests that payment be made only in his name and keeps all of the sale proceeds, excluding the other owners from their fair share. Make sure that payment is issued to all owners on the title.
Shareholder/Member of a Corporation or LLC Requests Payment in their Personal Name - It is difficult to verify that the person requesting payment is the sole owner or even a current shareholder or member. Sources, such as sunbiz.org can be easily modified electronically (really by anyone). Even if you request, and receive, the corporate records from the shareholder or member requesting payment, these might not be updated or current and are easily forged.
If payment is issued to an unauthorized individual, the company and true beneficiaries could file a complaint demanding payment, and you get caught in the middle. When legal title to the boat is in the name of a corporation or LLC, payment must be issued to the name of the titleholder of record.
All the shareholders or members might request that sales proceeds be disbursed to each individual according to their percentage interest in the company. However, there might be shareholders or members unknown to the broker, who if not included in the payment disbursement, are cheated out of their fair share of the proceeds. Additionally, percentage interests may have changed. Again, the only safe alternative is to issue payment to the titleholder of record.
Titleholder of Record is a Foreign Company Requesting Issuance of Payment to a Shareholder or Member- Foreign companies often claim difficulty opening US bank accounts, especially shell companies used to hold assets, such as title to a boat. The seller may request that the broker issue payment in the name of one of the shareholders. In this situation, you should insist on sending a cashier's check or a wire transfer directly to the titleholder's foreign bank account.
In our experience, bank accounts in the name of the seller often appear quickly when the seller is presented with a potential delay in receiving funds.
Disbursement to Seller's Attorney - In rare circumstances, you may be asked to disburse to the attorney representing the seller, acting as its registered agent or representative. The only safe alternative is to issue payment to the titleholder of record.
However, if the seller's attorneys are a well-established, serious law firm that you are comfortable with, and you decide to proceed, even though we could not advise you to do it, ask your own attorney to prepare satisfactory documentation to reduce your liability, indemnify you in case something goes wrong, and provide ample supporting documentation that the seller has authorized payment to its attorney in the established manner.
Disbursement to the seller with an escrow account check is the safest method. If wiring the funds to the seller, contact the receiving bank to verify that the name an account details are correct and the seller's name is identical to the name on the title. If you feel uncomfortable with the identity of a buyer or a seller, receive conflicting payment instructions, have complications with a corporate titleholder, or if something just doesn't feel right with the transaction, it is best to consult with an attorney. It is better to be safe than sorry.