Sunday 23 September 2018

Investment firm duped into losing €650,000 of client's cash hit with fine

Appian was heavily criticised by the Central Bank for failing to notice numerous
Appian was heavily criticised by the Central Bank for failing to notice numerous "red flags" that should have indicated fraudulent activity. Stock image

Charlie Weston Personal Finance Editor

AN investment management company has been fined €443,000 by the Central Bank after it left a client open to cyber fraud.

Appian Asset Management could have been fined double that amount if it was not for the fact that this would have risked tipping it into financial trouble.

Appian was heavily criticised by the Central Bank for failing to notice numerous "red flags" that should have indicated fraudulent activity to it.

It is the first time a regulated firm has been fined for the loss of client funds from cyber fraud.

The client lost €650,000, all of which was refunded.

A fraudster hacked into the email of the client in 2015 and used this to give false instructions to Appian to transfer funds to British banks in small tranches.

Dublin-based Appian discovered what had occurred and reported it to the Central Bank of Ireland and the gardaí, and replaced the funds in the client's account.

The victim of the fraud was an experienced businessperson who invested €1m in two Appian managed sub-funds in March 2005.

The Central Bank added that "had it not been for the financial position of the firm, the Central Bank would have imposed a financial penalty of €825,000".

Under the Central Bank Act 1942 the regulator is not allowed to impose a monetary penalty on a firm if it would cause the financial service provider to cease business.

Central Bank's director of enforcement and anti-money laundering Seána Cunningham said: "This is the first time the Central Bank has imposed a sanction on a firm where there has been a loss of client funds from cyber fraud as a direct result of the firm's significant regulatory breaches and failures."

Read more: The ‘red flags’ Appian money minders missed

Appian acted on the email instructions of the fraudster and liquidated €650,000 of the real client's investments.

Appian states on its website that it manages €800m in assets. It was Appian that blew the whistle on the Custom House Capital Ponzi scheme. Custom House was found to have misappropriated €66.5m of investors' funds when it collapsed.

Appian chief executive Patrick Lawless said Appian has since remediated its failings, and is complying with the risk mitigation programme issued by the Central Bank.

THERE were a number of warning signs from the fraudster who successfully swindled €650,000 from Appian Asset Management that were missed.

These "red flags" included the fact that the investor had clearly indicated that his strategy was to hold his investments for the long term.

Within two months of him making the investment Appian was supposedly receiving emails from him seeking to liquidate a large portion of the funds.

The English used in the emails was poor, with spelling mistakes and bad grammar.

Appian was asked to sent out the money in small amounts to a third-party. The fake client's British bank returned one tranche of funds on three occasions to Appian because incorrect account names and bank identifier codes were used.

Appian was "baited" into believing the fake client would invest €2m with it after selling a Swiss property.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business