Case Study: Wire Fraud

FACTS:  A provisional broker (PB) was licensed in December 2024. The PB was affiliated with a Broker-in-Charge (BIC) but had limited interactions with them and was not supervised/trained while conducting brokerage activities. During the first month of licensure, the PB was hired by their first client, a first-time homebuyer. The PB completed the agency agreements and disclosures without supervisionand successfully negotiated the best offer for their client. The buyer client and seller went under contract for a single-family residence.

After the due diligence period ended, the buyer client spoke with their closing attorney. During this conversation, the closing attorney informed them of the law firm’s settlement protocols, including verifying wiring instructions prior to sending settlement funds to their office.

One day before settlement, the PB received an email with wiring instructions for their client’s settlement funds. The email appeared to be from the closing attorney but was sent by a hacker who gained access to the law firm’s email account. Upon receipt of the wiring instructions, the PB  forwarded the email to their buyer client. In the forwarded email, the PB instructed their client to wire the funds to the account specified in the email and failed to advise the buyer client to confirm the information with their closing attorney. The buyer client trusted the advice of their buyer agent and wired $42,000.

The next day the closing attorney contacted the buyer client and informed them that the settlement could not proceed because the funds had not been received. After consulting with law enforcement and their financial institution, the buyer client discovered that the funds were sent to a fraudulent account and could not be recovered.

ISSUE: Did the BIC and PB act competently in this transaction?

ANALYSIS:  No. In this transaction, the BIC and PB were acting as fiduciaries for the buyer client. A fiduciary is an individual(s) entrusted to act on behalf of another in a relationship built on trust, with a legal obligation to prioritize the principal’s interest above their own. The common law of agency requires a fiduciary to:

• remain loyal to the principal and protect their personal and confidential information,
• act in good faith to advance the principal’s interest, and
• disclose all relevant facts that could affect the principal’s decisions.

Further, while acting as fiduciaries, brokers must also safeguard any property related to the client’s transaction, such as money, deeds, and documents.

In this scenario, the PB contributed to the fraudulent activity by forwarding wiring instructions to the buyer without advising them to confirm the information with the closing attorney. This conduct by the PB prevented them from acting in the best interest of their client by protecting their personal information (e.g. bank account) and safeguarding their property (e.g. closing funds). Essentially, the PB would have acted in the best interest of their client if they would have directed the buyer client to follow the protocols established by the closing attorney and communicate directly with them regarding any information or funds needed to proceed with the settlement.

Further, a BIC is responsible for supervising all brokerage activities conducted by a PB pursuant to Rule 58A .0506. A PB cannot hold an active license or engage in brokerage activities without a supervising BIC.

The scenario above indicated that the BIC never reviewed the PB’s brokerage transactions or communicated with them. To ensure competency, the BIC should make sure they have the necessary understanding to oversee their associates’s transactions, including the prevalence of wire fraud and some best practices to prevent it. For help on this topic, review and implement the best practices discussed in the 2020-2021 Update Course Section Cybersecurity.  

The Commission may consider the following criteria in assessing how adequately a BIC supervises a PB. The presence or absence of these factors will be considered along with all other pertinent information in arriving at a disciplinary decision.

1. Is the BIC available to assist, advise, and review the PB’s practices and is the PB available to be supervised?
2. Has the BIC established written policies and procedures under which all affiliated brokers are expected to operate?
3. Does the BIC review and monitor the brokerage activities of PBs?
4. Does the BIC hold regular meetings and otherwise assure proper implementation of and adherence to office policies and procedures?
5. Does the BIC provide ongoing quality training programs and materials to affiliated licensees and disseminate in a timely manner all regulatory information they receive pertaining to real estate brokerage practice?
6. What is the experience level of the PB?
7. Has the BIC delegated supervisory duties to another licensee in the office and, if so, what is the level of training and experience of that supervisory licensee?
8. In what types of brokerage activities is the PB engaged?
9. How many PBs does the BIC supervise and what is the ratio of supervisors to PBs?
10. What, if any, corrective or remedial action does the BIC take upon learning of a violation of the License Law or rules by a PB for whom the BIC is responsible?

If a PB acts incompetently while representing a principal, they may be subject to disciplinary action by the Commission. Further, per Rule 58A .0506, a BIC is responsible for the supervision of the PB, so they too may be subject to disciplinary action.

RESOURCES:

N.C.G.S. § 93A-6(a)(1), N.C.G.S. § 93A-6(a)(8), and 93A-6(a)(10)                        

License Law and Commission Rules: 58A .0110

Articles: 2020-2021 Update Course Section, “Provisional Brokers on a Team” 

2020-2021 Update Course Section, “Cybersecurity” 

Real Estate Closings Brochure  

Recent Arrests, Jury Verdict Highlight Ongoing Need for Wire Fraud Diligence