Real estate tech startup gets $12.5 million
Wire fraud is on the rise and poses a major threat to the real estate industry, 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, was launched in 2017 to combat electronic real estate fraud. The company helps protect the transactions of title agents, law firms, lenders, realtors, buyers and sellers.
Today, five years later, CertifID closed a Series A funding round with an investment of $12.5 million.
Funding comes from Arthur Ventures, a growth capital firm in Minneapolis, Minnesota. With this round, CertifID has the capital it needs to continue growing while protecting businesses and consumers from electronic fraud – something co-founders Thomas Cronkright and Lawrence Duthler understand firsthand.
“CertifID was basically born out of an incident of wire fraud,” said Cronkright, who is also executive chairman of CertifID and co-founder and owner of Sun Title with Duthler.
In 2015, Sun Title suffered a wire fraud loss of nearly $200,000 after a scam. Cronkright said the agency was asked to assist in title work for the sale of a gas station in southeast Grand Rapids.
After receiving and depositing a deposit check into an escrow account, the agency received a request to transfer the funds. It turned out to be a fraudulent application by scammers posing as the buyer and seller.
The scam resulted in two years of civil litigation before Cronkright said he was subpoenaed as a key witness in a federal criminal trial.
The scammers targeting Sun Title were part of an international crime syndicate based in Nigeria. Cronkright testified in open court against the organization’s second-in-command for its North American chapter, which was known to use business email compromise (BEC) systems.
In the end, 34 convictions resulted from the trial. Sun Title was able to recover $140,000 of its lost funds, although legal fees amounted to $100,000.
The experience led to the development of CertifID and the desire of its founders to prevent the same situation from happening to other business owners.
“We never could have foreseen that this type of crime and this type of bad energy would hit Grand Rapids,” Cronkright said. “At the time, nobody was talking about real estate fraud.”
Attention to electronic fraud and other online scams is perhaps more important than ever. According to the FBI’s 2021 Internet Crime Report, the United States experienced an unprecedented amount of malicious cyber activity last year.
The agency’s Internet Crime Complaint Center (IC3) received a record 847,376 complaints from the public, an increase of 7% from 2020. Total potential losses from scams topped $6.9 billion of dollars.
Of the 2,021 complaints received, BEC was one of the top commonly reported incidents.
BEC scams are typically conducted when business email accounts are compromised through social engineering or computer intrusion techniques, resulting in unauthorized funds transfers 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 industry specifically, the American Land Title Association’s 2021 Wire Fraud and Cyber Crime Survey found that a 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 take advantage of the shift to virtual communications and electronic transfers triggered during the COVID-19 pandemic,” said Tyler Adams, co-founder and CEO of CertifID.
Cronkright said this shift to virtual communications along with recent trends in the real estate industry have 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. “Historically low supply has led to more buyers offering cash financing rather than mortgage financing to make their deals more competitive.”
However, Cronkright said these types of buyers are bigger targets for fraud when transferring such a large amount.
As more cash buyers are targeted by scammers, Cronkright also said his team has seen more securities firms threatened by scammers posing as sellers, much like the wire fraud incident. by SunTitle.
“This type of activity, unfortunately, happens at a fairly steady pace,” he said. “Grand Rapids is no safer than any other part of the country.”
In response to the rise in scams and the need for help from victims of fraud, CertifID launched in 2021 a Fraud Recovery Services team in partnership with the United States Secret Service.
The team provides rapid response services, which Cronkright says is helpful for those who don’t know where to start in the event of wire fraud.
“Once they have an incident they don’t know what to do – there’s just no playbook,” he said. “There is no muscle memory for a cheating incident.”
Since last year, the team has helped 190 victims of fraud and reimbursed nearly $50 million from fraudulent accounts.
Overall, CertifID has protected over $150 billion in transactions since its inception. With Series A funding, the startup can expand its reach while continuing to deliver solutions.
“With the support of Arthur Ventures, we will be able to double down on our efforts to hire and retain exceptional talent,” Adams said.
For Cronkright, selecting Arthur Ventures was the ideal fit in terms of culture, leadership and experience.
CertifID will welcome Patrick Meenan, General Partner of Arthur Ventures, to its Board of Directors.
“CertifID addresses the biggest threat to the real estate industry,” Meenan said. “They have developed a unique suite of products to prevent fraud and a quick-response recovery team to support businesses and consumers who experience loss. We are thrilled to support such an impressive and mission-driven team.
While the technology component of CertifID is a key part of its fraud prevention efforts, education is equally important. Cronkright said it was crucial for industry players to exercise caution when sending emails and conducting transactions.
“You should be suspicious of any email,” he said. “You actually have to assume that when it comes to exchanging payment information or bills, someone’s email has been compromised.”
Cronkright also stressed the importance of having a system in place to verify identities and ensure banking information is connected to the correct person.
With all the changes in light of the COVID-19 pandemic, he said it can be easy to get used to scams involving urgent payment requests or new changes in banking information.
“The whole 24-month period that we’ve been through has adapted to changes that we haven’t seen in our generations,” he said. “That’s all we’ve adjusted to…and at a time when we should be more suspicious, I’d say what we’ve been through as a society has let our guard down, and that’s an area where we need to take a step back and raise our guard.
He said the CertifID team will use this new capital to continue preventing the impact of wire fraud for their customers and the customers their customers serve.
“We are grateful for the overwhelming confidence of our customers, partners, early investors and now the team at Arthur Ventures,” Cronkright said. “We look forward to continuing our dedication to a world where businesses and consumers can make electronic payments without fear of loss.”