Wire fraud is on the rise and poses a major threat to the real estate sector, but a Grand Rapids-based startup has secured a significant investment in its efforts to help prevent scams.
CertifID, which serves as a digital identity and device verification solution, launched in 2017 to fight wire fraud in real estate. The company helps safeguard transactions for title agents, law firms, lenders, real estate agents, buyers and sellers.
Now, five years later, CertifID has closed on a Series A financing round with a $12.5 million investment.
The financing comes from Arthur Ventures, a growth equity firm in Minneapolis, Minnesota. With this round, CertifID has the capital to continue its growth while protecting businesses and consumers from wire fraud — something cofounders Thomas Cronkright and Lawrence Duthler understand firsthand.
“CertifID was essentially born out of a wire fraud incident,” said Cronkright, who also serves as executive chair of CertifID and cofounded and owns the company Sun Title along with Duthler.
In 2015, Sun Title experienced a wire fraud loss of nearly $200,000 after a scam. Cronkright said the agency was asked to assist with the title work for the sale of a gas station in southeast Grand Rapids.
After receiving and depositing an earnest money check into an escrow account, the agency got a request to transfer the funds. It turned out to be a fraudulent request from scammers impersonating the buyer and seller.
The scam resulted in two years of civil litigation proceedings before Cronkright said he was subpoenaed as a lead witness in a federal criminal trial.
The scammers targeting Sun Title were part of an international crime syndicate based out of Nigeria. Cronkright testified in open court against the organization’s second in command for its North American chapter, which was known for using business email compromise (BEC) schemes.
In the end, 34 convictions resulted from the trial. Sun Title was able to retrieve $140,000 of its lost funds, though legal fees amounted to $100,000.
The experience led to the development of CertifID and a desire in its founders to prevent the same situation from happening to other business owners.
“We never could have anticipated that this type of crime and this type of bad energy could hit Grand Rapids,” Cronkright said. “At the time, nobody was talking about real estate wire fraud.”
Attention to wire fraud and other online scams is perhaps more important now than ever. According to the FBI’s 2021 Internet Crime Report, the U.S. experienced an unprecedented amount of malicious cyber activity last year.
The agency’s Internet Crime Complaint Center (IC3) received a record 847,376 reported complaints from the public, which was a 7% increase from 2020. Total potential losses from the scams exceeded $6.9 billion.
Among the 2021 complaints received, BEC was one of the top incidents commonly reported.
BEC scams are typically carried out when business email accounts are compromised through social engineering or computer intrusion techniques, resulting in unauthorized transfers of funds like the incident with Sun Title.
These types of schemes alone resulted in 19,954 complaints in 2021 with an adjusted loss of nearly $2.4 billion.
For the real estate sector specifically, the American Land Title Association’s 2021 Wire Fraud and Cyber Crime Survey found one-third of all real estate transactions in 2020 were targeted by scammers. Seventy-one percent of stolen funds had not been fully recovered as of March 2021.
“Fraud is at an all-time high as global criminal networks prey on the shift to virtual communications and electronic transfers ignited during the COVID-19 pandemic,” said Tyler Adams, fellow cofounder and CEO of CertifID.
Cronkright said this shift to virtual communications along with recent trends in the real estate industry created a “perfect storm” for scammers, who tend to thrive on disruption.
“In real estate, not only do you have price increases, but you have historically low supply,” Cronkright said. “The historically low supply has led to more buyers offering cash rather than mortgage financing so that their offers are more competitive.”
However, Cronkright said these types of buyers are bigger targets for fraud when transferring such a significant amount.
As more cash buyers are being targeted by scammers, Cronkright also said his team has seen more title companies threatened by scammers impersonating sellers, just like Sun Title’s own wire fraud incident.
“This type of activity, unfortunately, is taking place at a pretty regular rate,” he said. “Grand Rapids is no safer than any other part of the country.”
In response to the surge in scams and a need for help for fraud victims, CertifID launched a Fraud Recovery Services team in 2021 in partnership with the United States Secret Service.
The team provides rapid response services, which is something Cronkright said is helpful for those who don’t know where to start when wire fraud occurs.
“Once they have an incident, they don’t know what to do — there just isn’t a playbook,” he said. “There’s no muscle memory for a fraud incident.”
Since last year, the team has helped 190 fraud victims and returned close to $50 million from fraudulent accounts.
Overall, CertifID has protected more than $150 billion in transactions since its inception. With the Series A financing, the startup can expand its reach while continuing to provide solutions.
“With the backing of Arthur Ventures, we’ll be able to double down on hiring and retaining exceptional talent,” Adams said.
For Cronkright, the selection of Arthur Ventures was an ideal fit in terms of culture, leadership and experience.
CertifID will welcome Patrick Meenan, general partner for Arthur Ventures, to its board.
“CertifID is tackling the biggest threat to the real estate industry,” Meenan said. “They have developed a unique suite of products to prevent fraud and a rapid response recovery team to support businesses and consumers who experience a loss. We are thrilled to back such an impressive, mission-driven team.”
While the technology component of CertifID is a key part of its fraud prevention efforts, education is equally as important. Cronkright said it’s crucial for those in the sector to take caution when sending emails and completing transactions.
“You have to be suspect of any email,” he said. “You actually have to assume that when it comes down to the exchange of payment information or invoices, somebody’s email has been compromised.”
Cronkright also pointed out the importance of having a system in place to verify identities and ensure bank information is connected to the right person.
With all the changes in light of the COVID-19 pandemic, he said it can be easy to grow accustomed to scams involving urgent payment requests or new changes in bank information.
“The entire 24-month period we’ve been through has been adapting to change that we haven’t seen in our generations,” he said. “That’s all we’ve been adjusting to … and at a time where we should be more suspect, I would say that what we’ve been through as a society has lowered our guard, and this is an area where we have to take a step back and raise our guard.”
He said the CertifID team will use this new capital to keep preventing the impact of wire fraud for their clients and the customers their clients serve.
“We are thankful for the overwhelming confidence from our customers, partners, early investors and now the team at Arthur Ventures,” Cronkright said. “We look forward to continuing to dedicate ourselves toward a world where businesses and consumers can make electronic payments without the fear of loss.”