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Monday, March 30, 2020

IL Supreme Court says securities firm is a 'bank' under Uniform Commercial Code, can be sued for funds transferred in hack


By Dan Churney | Mar 25, 2020

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Illinois Supreme Court | Vimeo livestream screenshot

The Illinois Supreme Court has ruled a securities firm can be classified as a "bank" under the Uniform Commercial Code, and so can be sued under the code for allegedly letting a hacker steal funds from a client's accounts.

Justice Thomas Kilbride delivered the decision March 19, with concurrence from Chief Justice Anne Burke and Justices Rita Garman, Lloyd Karmeier and Mary Jane Theis. Justices P. Scott Neville and Michael Burke did not take part.

The ruling went against Wedbush Securities, a firm based in Los Angeles, in a suit lodged against it in 2015 in Cook County Circuit Court by James Q. Whitaker. Whitaker died in 2019, but the executor of his estate has continued the action.

Illinois Supreme Court Justice Thomas L. Kilbride |

Whitaker had two commodity futures trading accounts with Wedbush in late 2014, which were held at BMO Harris Bank in Chicago, when Whitaker’s email account was hacked. The hacker, posing as Whitaker, sent several messages to Wedbush to transfer $374,960 from Whitaker’s accounts to a bank in Poland. Wedbush believed the messages were genuine and moved the funds.

Whitaker soon recognized the theft on an account statement. He demanded Wedbush return the funds, but the firm refused. Whitaker then sued, claiming fraudulent concealment under Article 4A of the Uniform Commercial Code, a comprehensive collection of laws governing interstate commercial transactions. 

The case went to a bench trial in June 2018, with Cook County Judge Daniel Kubasiak ruling for Wedbush on grounds Article 4A applies to banks, and a securities firm is not a bank.

Whitaker appealed and lost, but the state high court agreed to hear the matter.

Whitaker pushed the argument that Wedbush is a bank because it provided personal savings, lending and checking services. 

Justice Kilbride agreed, pointing out Wedbush met the definition of a bank in multiple ways.

“Courts have consistently held mutual fund companies, brokerage firms, and insurance companies may fall within the definition of a bank under” Article 4A, Kilbride noted.

Kilbride further said: “Furnishing funds transfers is a common banking function,” which is a function in which Wedbush engages.

Specifically, Kilbride quoted Article 4A as governing "‘[w]holesale wire transfers’" typically involving "‘very large amounts of money,’" as in Whitaker's case, instead of consumer-based transactions involving "’relatively small amounts of money and a single contract.'"

In addition, Kilbride noted that when Wedbush bought Whitaker’s accounts from KCG Futures in 2014, KCG described Wedbush to Whitaker as a “leading financial services company” that offered brokerage and trading services. 

“It is clear that defendant is a financial institution,” Kilbride observed of Wedbush.

The state Supreme Court remanded the case to Cook County court for further proceedings.

Whitaker’s estate is represented by Lavin & Waldon, of suburban Highland Park.

Wedbush is defended by the Chicago firm of Greenberg Traurig.

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Organizations in this Story

Illinois Supreme CourtGreenburg & TraurigCircuit Court of Cook CountyLavin & WaldonWedbush Securities

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