Fraudulent transfers
Studco Building Systems U.S. LLC v. 1st Advantage Federal Credit Union
Date: Oct. 6, 2025
Issue: Whether a financial institution can be held liable under UCC 4-207 for processing a fund transfer when the beneficiary name and account number do not match, without having actual knowledge of the discrepancy.
Case Summary: The U.S. Supreme Court declined to review a Fourth Circuit decision that ruled a credit union was not liable for a wire transfer in a business email compromise scam case where the credit union lacked “actual knowledge” of the mismatch between the account number and beneficiary.
In 2018, an unknown third party impersonating Olympic Steel sent Studco a fraudulent email instructing it to update Olympic Steel’s banking information. The scammers provided an account number they controlled. Believing the request was legitimate, Studco made four ACH payments to the account at 1st Advantage, listing Olympic Steel as the beneficiary. In reality, the funds went to an account owned by someone else who had also fallen victim to the scheme.
1st Advantage’s monitoring platform for ACH transfers automatically generated warnings for ACH transactions when the payee identified by the party transmitting the funds did not exactly match the name of the customer holding the account receiving the funds. The platform generated hundreds to thousands of warnings related to mismatched names on a daily basis, but the system notified no one when a warning was generated, nor did 1st Advantage review the reports.
In 2019, Studco sued 1st Advantage, alleging it failed to follow basic security procedures and should have rejected the transfers. Judge Raymond Jackson of the Eastern District of Virginia ruled for Studco, concluding the credit union would have discovered the mismatch between the intended payee and the recipient if it had exercised due diligence.
On appeal, a Fourth Circuit panel reversed, ruling financial institutions bear no liability for fund transfers when the beneficiary’s name and account number do not match, unless the institution had “actual knowledge” of the mismatch at the time of transfer. Rejecting the district court’s “knew or should have knew” standard, the Fourth Circuit emphasized the standard for assessing liability under UCC 4A-207 for beneficiary banks is actual, subjective knowledge. The Fourth Circuit also observed that 1st Advantage processed hundreds to thousands of transactions each day, making manual review impractical, and that it followed standard practice by relying on the account number Studco supplied.
On July 18, 2025, Studco petitioned the U.S. Supreme Court to review the case, claiming that the circuits disagree on how to interpret UCC Section 4A’s knowledge standard. Studco argued that Section 4A-207 makes a beneficiary bank liable when it would have discovered a mismatch through due diligence. Studco argued the Fourth Circuit abused its discretion by refusing to remand the case for the district court to apply the “actual knowledge” standard. Studco also argued that courts disagree on whether Section 4A-207 requires privity, which establishes a direct contractual or legal relationship between parties. Still, the Supreme Court declined to review the case and offered no additional comment.
Bottom Line: The Supreme Court let stand a Fourth Circuit ruling that shields banks from liability for fraudulent fund transfers unless they had actual knowledge that the beneficiary’s name and account number did not match.
Document:
Fourth Circuit opinion
Petition
