Urban-gro Inc. (Nasdaq: UGRO), an interior agricultural engineering company, has been hit by fraudulent wire transfers totaling $ 5.1 million, the company reported in a filing with Securities and United States Exchange Commission October 19.
The company said it was made aware of unauthorized fraudulent wire transfers initiated by third parties on October 13.
“Approximately $ 2,100,000 is in the process of being recovered from recipient banks,” the company said in the file. “The Company has reported the incident to its insurer and expects the Company’s bank, the bank’s insurers or the Company’s insurer to reimburse the Company for the remaining balance, as the Company believes that the bank did not follow proper and industry standard procedures designed to prevent such theft and is therefore liable for the unrecovered balance.
Dick Akright, chief financial officer of urban-gro, told BizWest that the fraudulent transfers were discovered when the company examined its bank accounts.
“When we found out what had happened, we contacted the bank to tell them, listen, there are transfers to our account that certainly weren’t authorized by us, we have to work with you to get to the bank. bottom of it, how it set in, how they went through the process, why they were allowed out of the bank, â€he said.
He said collecting the funds will likely take time, including for the $ 2.1 million that was still being processed by recipient banks.
“We haven’t seen that money come back yet, but we’ve stopped the process,†he said. “Unfortunately, it’s a complicated process, working with regulators and law enforcement officials regarding this process.â€
Akright said urban-gro was reviewing its own processes, but pointed out that the anonymous bank was responsible.
“Our point of view on this is, certainly, that it was not sort of us from the point of view of what happened,†he said. “I can’t go into a lot of specifics, but we feel like it’s like, look, it happened because of some wrongdoing by a third party, not from us, that let it happen. produce, and that we believe we will recover all of those funds through one or the other of the avenues we outlined in the press release.
He described the transfers as a “very complex and complicated fraud”.
“There are some very sophisticated parties out there, basically looking to defraud businesses and banks from the point of view of just seizing funds in any way they can,†Akright said.
Urban-gro’s balance sheet as of December 31, 2020 showed only $ 184,469 in cash, but a public offer concluded in February raised $ 62.1 million. The offer raised the profile of the company, making it a more attractive target for fraud, Akright said.
“Absolutely,†he said, “unfortunately, but absolutely. When you have money raised like that, it’s public information, it’s there for people to see. It makes you sort of a target from both who we are and the banks we operate with. It means we have to have a higher level or a higher level of due diligence and some sort of prudence in everything. We expect that from the point of view of the banks and anyone else we work with from a payment processing point of view.
Urban-gro is expected to release its third quarter results after the market closes on November 9. The company’s stock closed 2.03% lower on Tuesday, closing at $ 11.61, with a further decline of 4.13% on Wednesday, closing at $ 11.13.
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