High Court denies motion to reverse billions of naira Flutterwave lost in PoS fraud

On Wednesday, August 14, 2024, A federal High Court sitting in Abuja reportedly denied a motion by the Inspector General of Police (IGP) seeking to order about 12 banks and financial institutions to reverse billions of naira allegedly withdrawn from a Flutterwave account at Wema Bank fraudulently

The withdrawals reportedly occurred due to a system glitch between October 12 and 13, 2023.

In the motion ex parte, marked FHC/ABJ/CS/1015/24 and dated July 17, 2024, the IGP’s legal team argued that about 244 suspects (defendants) criminally siphoned billions from Flutterwave’s account, transferring the funds to numerous bank accounts belonging to individuals who are either untraceable or difficult to locate.

The court declined to grant the ex parte motion, emphasizing the need for the banks to be heard and noting the applicant’s failure to file a motion on notice alongside it.

The 2023 Flutterwave Glitch

Earlier in the year, the online media platform Tech Cabal reported that Flutterwave allegedly lost N11 billion due to the security breach, citing inside sources familiar with the incident.

However, the company’s statement suggests that the breach was ultimately unsuccessful.

Flutterwave confirmed that the incident occurred in April when it detected unusual activities on one of its platforms, used by a small number of customers for specific business transactions.

The company stated that it immediately informed law enforcement agencies and provided the IP address and details of the offenders. In a statement sent to Nairametrics, the company said it successfully blocked an “attempted network intrusion and reported the offenders to security agencies.” 

Despite this, court documents later revealed that the company had sought police assistance to recover the stolen funds. Preliminary investigations by the police showed that fraudulent transactions were carried out using Flutterwave POS terminals on October 12 and 13, 2023.

Flutterwave requested Wema Bank to immediately freeze its settlement account, from which large sums were moved to various individual bank accounts.

Data from the Nigeria Inter-Bank Settlement System (NIBSS) also revealed that 9,633 erroneous transactions were conducted on the Flutterwave POS platform on October 12 and 13, 2023, by 814 Flutterwave POS agents during the system glitch.

According to NIBSS, Flutterwave’s total exposure at the time was estimated at N21.2 billion. However, Flutterwave worked with banks to restrict affected accounts, successfully preserving N7.2 billion.

The Inspector General of Police (IGP) noted that his team eventually arrested some suspected POS agents involved in the fraudulent activities.

IGP’s motion denied: Federal High Court emphasizes fair hearing in Flutterwave Case

During proceedings on Wednesday, the Inspector General of Police (IGP)’s counsel, Victor Okoye, urged Justice Peter Lifu to grant his motion ex parte, in accordance with relevant laws, and order the reversal of funds to Flutterwave.

However, the judge challenged Okoye to justify why the ex parte motion should be granted without hearing from the respondents, in line with the constitutional provisions of fair hearing.

“Should I order them [the banks] to reverse the funds without hearing their side of the story, based on your one-sided account?” the judge questioned. 

He further added, “If I grant the reversal, what is left of this case? You did not file a motion on notice. Once I reverse it, that is the end of the matter,” citing the necessity of a fair hearing, particularly from the banks involved.

Okoye argued that the defendants were not traceable and could approach the court at any time, but the judge countered that the banks should have been served with the legal processes so they could respond, as they are the entities responsible for reversing the funds.

The judge also pointed out that there was no motion on notice accompanying the ex parte motion, as required by the court’s rules.

“Who is to reverse it if not the banks? Serve them and let them come and tell me, ‘We surrender, we have no objection, and we are ready to comply with the court order,’” the judge responded. 

Subsequently, the judge refused the ex parte motion, describing it as a clear breach of Section 36 of the 1999 Constitution, which guarantees the right to a fair hearing.

Lawyers’ Perspectives

Barrister Michael Okejimi, in an exclusive interview with Nairametrics, explained that while the law permits a judge to decide whether to hear the other party before granting an ex parte motion, the principle of fair hearing is fundamental.

“Ordinarily, no party deserves to be unheard in a matter,” he stated. 

He elaborated that while the right to be heard is enshrined in Section 36 of the 1999 Constitution, there are exceptional cases where notifying the other party could cause irreparable harm. He noted that the correct legal procedure typically involves filing a suit, followed by motions on notice and ex parte for interim orders.

Barrister Opeyemi Owolabi shared a similar view, telling Nairametrics in an exclusive interview that when an ex parte application is submitted without a motion on notice or interlocutory injunction, it suggests that the court is considering the prayers at a preliminary stage.

He explained that the purpose of an ex parte motion is often to allow security agencies or an applicant to investigate an account before funds are withdrawn, as such withdrawals could hinder further investigation. He emphasized that the grounds of motion on notice and fair hearing are valid reasons to refuse an ex parte motion.

Owolabi concluded that without an interlocutory injunction or motion on notice, the ex parte motion is essentially incompetent.

Fraud Incidents in Fintech and Banks

• Flutterwave is not the only company to experience significant fraud incidents. For example, in 2022, MTN, Africa’s largest mobile network operator, lost a total of N10.5 billion to cybercriminals.
• Similarly, the Fraud and Forgeries report released by the Financial Institutions Training Centre (FITC) revealed that Nigerian banks lost a total of N2.09 billion to fraud in Q4 2023, with mobile channels emerging as the primary method through which the largest amounts were stolen.