Three years after his dream of owning a farm steps away from where he grew up came true, Matt Penney and his partner fell victim to a scam that robbed them of $20,000 — and their plan to grow their business.
“It just kind of kills your dream. Kills the momentum – that’s the hard part,” said Penney.
“It’s not just a money thing. It just affects every element of our business.”
In April, Pengrove Farms was contacted by a company that alleged to be a catering business. The farm sells high-quality locally sourced meat and regional products.
“Everything went pretty normal, we didn’t see any red flags or reasons to suspect anything,” said Penney after the first order.
But the situation unravelled during the next order, when parts of the company’s payment fell through, and what happened next raises questions about the protections — or lack thereof — for small Quebec businesses who could be targeted by fraudsters.
In mid-June, the family was contacted by Square, the popular payment processing platform used for purchases at the farm, which notified them that all the transactions done with the caterers — totalling around $20,000 — were fraudulent. The family was told they were responsible for reimbursing Square for the loss.
Alana Cosgrove, co-owner of Pengrove Farms, says a scam like this is devastating for any small business. She and her partner Matt Penney are hoping to raise awareness about the sophistication of these schemes, and create policy change for more business protections. (Chloë Ranaldi/ CBC News)
“It’s kind of like a make-or-break type amount,” said Alana Cosgrove, co-owner of Pengrove Farms. “We’re here basically full time. We have a young family.”
She says that regardless of being defrauded around $20,000, the family still needs to pay their suppliers to continue their business.
A scam built on a sense of trust
The couple explained that the fraudsters had built a relationship with them, making jokes on the phone, asking questions, and talking about their own business. They even came in person to pick up their order, which was believed to have been paid in full.
Andréanne Bergeron, an associate professor at the School of Criminology at L’Université de Montréal, says that once trust is built through an initial payment, fraudsters will usually place a larger order, receive the goods, then disappear.
“It is a much more sophisticated fraud than we used to see before, because it will exploit some sort of psychological mechanisms related to trust,” she explained.
“Receiving a payment for the farmer is very powerful to trust the person later on.”
Bergeron, also a researcher at Flare, a Montreal-based technology company, says once someone establishes that a person is trustworthy, people keep that judgment. She says it’s impossible as a business to operate any differently.
Andréanne Bergeron is an associate professor at the School of Criminology at Université de Montréal where her research focuses on cybercrime. She says these kinds of scams are sophisticated because the relationship with the fraudsters is built on trust and multiple dealings. (Josiannne Letourneau/CBC)Quebec businesses on the hook for fraudulent payments
In Quebec, payment platform sites are not regulated like banks or insurance companies, meaning the chargeback liability falls on merchants.
In the case of Pengrove Farms, this means all the money that was fraudulently paid to the business through Square has to be returned to the platform.
Frédérique Lissoir is the founder of law firm Propulsio360 and a business, banking law and financial law professor at the University of Ottawa. She says Quebec has the Money-Services Businesses Act, which requires these financial services websites to have an operating licence but provides no protections for the merchants that work with them.
“Consumer law in Quebec protects consumers that are defined as individuals, whereas here we’re talking about small businesses, even though it’s operated by individuals,” explained Lissoir.
Frédérique Lissoir is the co-founder of the law firm and business advisory group Propulsio360, and teaches business and banking law, as well as financial law at the University of Ottawa. (Chloë Ranaldi)
She points to other jurisdictions such as the European Union or the United Kingdom, where they developed legislation to better protect businesses from these kinds of frauds, including credit limits and controlled chargebacks.
Lissoir says the responsibility falls on the merchant when they are defrauded in Quebec.
In a statement, Square says it cannot comment on specific cases, but it told CBC “fraudsters exploiting small businesses is a serious problem and causes real harm. When a seller has been the victim of buyer fraud, we work with them directly, case by case.”
Lissoir says it’s also no longer standard practice for insurance companies to cover this kind of fraud since it’s become so rampant, leaving businesses at a loss.
She says businesses want to protect themselves but are in a situation where they need real policy change.
But Penney, the co-owner of Pengrove Farms, says they found out the hard way that small businesses are not covered like consumers are, and are held liable for all the losses.
“As a business owner, you kind of assume you’re under the same protections as consumers are. That if there’s fraud, your credit cards cover your losses,” he said.
The family-run business says it’s grateful for the community for rallying behind them following the fraud. (Chloë Ranaldi/ CBC)
The family is planning to meet with local politicians to discuss the creation of legislation to better protect businesses from these kinds of scams.
Meanwhile, through a GoFundMe campaign, and with the support of the people who come to their weekly markets, the family was able to raise thousands of dollars to support their business.
“The response from the community has been overwhelming. It makes us really emotional to talk about and to think about it and just to be shown so much love and understanding. It’s been remarkable,” said co-owner Cosgrove.
The family is hoping to rebuild from their losses and raise awareness about what happened to them.