New York prosecutors indicted four people last week on charges that they exploited a banking regulation designed to help fraud victims in order to steal more than $422,000 over five years.
The alleged bank-fraud ring defrauded more than 20 banks by claiming their ATM cards had been lost or stolen after draining their accounts, according to Kings County District Attorney Charles J. Hynes.
The defendants are accused of exploiting Regulation E of the Federal Electronic Funds Transfer Act, which requires banks to reimburse fraud victims within 10 days of a fraud report. "These defendants corrupted a law created to help fraud victims and used it to facilitate a tremendous fraud of their own," Hynes said in a prepared statement.
According to the indictment, Eric Manganelli, 36, Lam Dang, 37, John Tluczek, 37, and Marzena Tluczek, 35, opened bank accounts and padded them with large deposits over several months. Later, they drained the accounts with withdrawals of $500 to $1,000 per day. When the accounts were empty, the defendants would call the bank, report that their ATM cards had been stolen or lost and that the withdrawals were unauthorized. After the banks reimbursed them for the loss, they would close the accounts.
The defendants withdrew the reimbursed funds before the banks could finish investigating the validity of the loss claim, prosecutors said.
Prosecutors said all four are charged with using their knowledge of the law and the financial industry to perpetrate their fraud. Manganelli is a lawyer, Dang is a financial advisor and the Tluczeks both worked at banks, they said.
They are charged with multiple counts of grand larceny, falsifying business records, attempted grand larceny, perjury, and scheming to defraud.
The case illustrates how banks' focus on fraud resolution at the expense of prevention and detection has created a new criminal opportunity, according to James Van Dyke, president and founder of Pleasanton, Calif.-based Javelin Strategy & Research.
In a blog post on the bank fraud case, he wrote that the financial services industry has met more than 80% of consumers' fraud resolution needs and needs to devote more attention to the "relatively weak areas" of prevention and detection.
"With scarce resources available, we're overly focused on cleaning up problems and not focused enough on stopping problems from occurring in the first place," he wrote.