Urban-gro Inc. (Nasdaq: UGRO), an indoor agricultural engineering firm, has been hit by fraudulent wire transfers totaling $5.1 million, the company reported in a filing with the U.S. Securities and Exchange Commission on Oct. 19.
The company said it learned of the unauthorized, third-party-initiated fraudulent wire transfers Oct. 13.
“Approximately $2,100,000 is in the process of being recovered from the recipient banks,” the company said in the filing. “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 the bank failed to follow proper and industry standard procedures designed to prevent such a theft and is therefore liable for the unrecovered balance.”
Dick Akright, urban-gro’s chief financial officer, told BizWest that the fraudulent transfers were discovered when the company was reviewing its bank accounts.
“When we discovered what had happened, we reached out to the bank to say, look, there are transfers in our account that certainly weren’t authorized by us, we need to work with you on getting to the bottom of this, how this got set up, how they went through the process, why they were allowed to go out of the bank,” he said.
He said that recovery of the funds likely will take time, including for the $2.1 million that was still being processed by the recipient banks.
“We haven’t seen that money come back yet, but we did get the process stopped,” he said. “Unfortunately, it’s a complicated process, working with regulators and law authorities with regard to this process.”
Akright said urban-gro is reviewing its own processes, but he pointed to the unnamed bank as being responsible.
“Our view on this is, certainly, this was not kind of on us from the standpoint of what happened,” he said. “I can’t go into a lot of the details, but we are under the impression that it’s like, look, this happened because of some failings on a third party, not our part, that let this happen, and that we believe we will get back all these funds through either one, or a combination of those avenues that we outlined in the press release.”
He described the transfers as a “highly complex, complicated fraud.”
“There are some very sophisticated parties out there, looking to basically defraud companies and banks from the standpoint of just getting ahold of funds any way that they can,” Akright said.
Urban-gro’s balance sheet as of Dec. 31, 2020, reported just $184,469 in cash on hand, but a public offering completed in February raised $62.1 million. That offering raised the company’s profile, 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 out there for people to see. It makes you kind of a target from the standpoint of both who we are, and the banks that we operate with. It means that we have to have a higher level or a high level of due diligence and a kind of just being cautious with regard to everything. We expect that from the standpoint of the banks and anybody else that we’re working with from the standpoint of payment processing.”
Urban-gro is scheduled to report its third-quarter earnings after market close Nov. 9. The company’s stock closed down 2.03% Tuesday, closing at $11.61, with an additional decline of 4.13% Wednesday, closing at $11.13.
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