K&L Gates Successfully Defends HSBC Bank in Phishing Scheme

A team of lawyers from K&L Gates LLP successfully represented HSBC Bank USA, N.A., in obtaining dismissal of claims brought by a marijuana dispensary alleging that the bank aided and abetted in the fraudulent transfer of more than $450,000 in funds.

Bud's Goods & Provisions of Worcester filed suit in March 2021 naming a scam suspect and HSBC as defendants after the Bud’s Goods owner lost more than $450,000 to the scammer, who hacked the owner’s email and pretended to be a contractor. Bud’s Goods asserted that HSBC Bank should have known that the account used by the hacker, opened for personal use, was being used to transfer stolen money. A federal judge in Massachusetts rejected the claims, however.

Most recently, Judge Timothy S. Hillman denied Bud’s Goods’ motion for leave to file a second amended complaint to add allegations against HSBC Bank, finding the plaintiff failed to show the financial institution had knowledge of fraudulent conduct relating to the transfer of money in a hacking scheme. Relying on a 2022 District of Massachusetts opinion, In re TelexFree Sec. Litig., Judge Hillman held that constructive knowledge, or the idea that the defendant should have known of the fraud, is not enough to proceed.

“Plaintiff’s conclusory allegation that HSBC knew of the fraud because it ‘continued to allow [accountholder] to misuse [his account] in a manner inconsistent with personal use’ is similarly unavailing because most bank customers are allowed to continue using their account after a single declined transaction. This is especially so where, as in the instant case, there are no allegations that would support an inference that HSBC’s reason for declining the transaction was because of suspected fraud. Finally, Plaintiff’s allegation that HSBC ‘took immediate notice that the Account was improperly being used’ after denying a single transaction from the Account does not establish that Defendant had actual knowledge of fraud; it is conclusory and without factual basis…,” Hillman wrote. “Simply put, Plaintiff’s allegations do not establish when, where, or how HSBC allegedly became aware of the fraud and fail to explain how HSBC was involved at all, aside from being a ‘respected financial institution.’ Therefore, the Court finds that the allegations in Plaintiff’s proposed second amended complaint are insufficient to establish a plausible claim of aiding and abetting against HSBC,” the judge added.

Hillman dismissed the case in a separate order. The K&L Gates team representing HSBC Bank in this matter was led by Boston partner Sean Higgins with support from staff lawyer Keith McCarthy.