Earl Walls lost much more than money when he was scammed in what he thought was a work-at-home job processing payments for a renowned British art gallery.

The 65-year-old retired factory worker from Huntington, W.Va., lost his dignity and his reputation when, on Sept. 26, his bank called police to arrest him on counterfeiting and check fraud charges.

"Earl was handcuffed in the bank lobby, in front of everybody," says family friend Felicia Adams. "He was treated like he was some kind of criminal mastermind." After his arrest was reported in the local newspaper, "he became the talk of the town," she says, "and not in the way you want in Smalltown, USA."

Walls also lost more of his already declining health, as the stress of a pending criminal trial and the possibility of up to 16 years in prison put him in the hospital for chest pains. And in addition to the $3,000 he lost in the scam, he was denied, for two months, access to his only income—monthly direct-deposit Social Security checks—after United Bank, where he had banked for five years, froze his account. (He has since switched to another bank and gets his checks.) "I have been living on borrowed money so I could pay my bills," he says. "I even had to borrow $1,500 to bail me out of jail. And before this, I never even had a traffic ticket."

He was duped in a wire transfer scheme, a widespread, growing hoax in which victims receive authentic-looking checks or money orders and are instructed to deposit them in their personal bank accounts and then quickly wire the money overseas. The checks, in fact, are fakes.

In Walls' case, he thought he was handling payments from U.S. customers of acclaimed artist Jack Russell, owner of an art gallery in England. In reality, the "Jack Russell" who contacted Walls on Sept. 2 via an unsolicited e-mail, offering a 10 percent commission on each payment check he processed, was part of a Nigerian scam ring that lures victims on job and dating websites, sometimes as "Maxx0029."

Wire transfer fraud is the common thread in other scams that con millions of dollars and personal financial information each year from older Americans—including phony lotteries, swindling sweepstakes, "overpayments" in online auction sales, online dating deceptions and job fraud, many of them originating in Africa, East Asia and Eastern Europe.

Blame the explosion of these scams partly on high-tech printers that can create realistic counterfeit checks and on the U.S. Expedited Funds Availability Act, which limits the "hold" time banks can place on any check under $5,000.

Under this 1987 law, money from deposited cashier's checks, U.S. postal money orders and government checks must be made available to bank customers by the next business day. Funds from personal and corporate checks cannot be held more than five days.

But "made available" doesn't mean deposited checks have actually cleared—no matter what the teller says or what your account indicates the next day. Rather, the bank is essentially "fronting" the deposit until it actually collects those funds from the check issuer, which can take 10 days or longer.

"Nearly 40 billion checks are processed each year, and that service is based on some element of trust," says John Hall of the American Bankers

Association. "The bank is trusting that your deposits are legitimate. And when you accept a check from another party, you are trusting that the check is good, or you wouldn't deposit it." Hall acknowledges that tellers may indicate to a customer that a check has cleared before it actually has.

That's how Earl Walls, like thousands of others, got scammed. He had replied to what he believed was a legitimate job, agreeing to serve as a U.S. agent for "Jack Russell." He then received a Federal Express package with six $500 traveler's checks—with instructions to deposit them and quickly wire those funds to Anthony Orekoya, the art dealer's "associate" in Nigeria.

At the bank on Sept. 15, "the teller asked no questions and only had me sign each check and gave me cash," Walls says. "I was told everything was fine, so I went to Western Union to wire the money" to Nigeria.

The 1987 law—often cited by banks as the reason they hold customers accountable in fake check scams—allows a bank to delay longer in making deposited funds available if "there's a reasonable cause to doubt [their] collectibility." The point is that banks must inspect customers' checks.

Had Walls' teller done so before cashing his checks, she would have noticed they were "obviously" counterfeit, says Derek Walker, an investigator with the West Virginia Attorney General's Office. "Some of the traveler's checks were missing a signature, and they all had a phony routing number," Walker says. "The teller should have noticed this."

It wasn't until Walls went back to the bank 11 days later—with checks for another $4,000 from "Jack Russell"—that he was told "it was just discovered" that his first batch of checks was counterfeit. "I was told they were about to call me at home but hadn't gotten to it yet," Walls says. "The next thing I knew, the police arrived at the bank and arrested me."

No matter that in August—one month before Walls was arrested—West Virginia Deputy Attorney General Jill Miles had issued a warning on the type of check scam that victimized Walls. "I don't know if United Bank reads our website, but this is not an isolated case in West Virginia—or elsewhere," she says. "Every single day, we get phone calls about these fake checks."

Walls, who had contacted Scam Alert about his case, was set to go on trial Dec. 13 on more than a dozen counts, but prosecuting attorney Jim Young agreed to dismiss charges after an investigation by the Attorney General's Office and Scam Alert showed that he'd been unknowingly duped—and wasn't a counterfeiting co-conspirator.

Still, Walls will likely have to repay United Bank the $3,000 he cashed—"about everything I had," he says.

Branch president Tim Kinsey and Steven Wilson, spokesman for its parent corporation, United Bankshares Inc., declined comment on the case, citing "customer confidentiality." Wilson says he first learned of Walls' arrest from Scam Alert, which had received the same form-letter job offer and instructions as Walls after responding—via a phony Yahoo e-mail address—to a help-wanted posting on two websites.

In England, Jim Ruston, a spokesman for the Jack Russell Gallery in Gloucestershire, says he has tried in vain to stop the fraudulent use of his boss's name. "This is indeed worrying, and definitely has nothing to do with us."

But other wire transfer scams continue. "Scammers can produce counterfeit checks that are dead-on matches—good enough to fool seasoned law enforcement and banking experts," says U.S. Postal Inspector Jim Black. "Of course they'd fool a 25-year-old bank teller. And unfortunately, all too often, they do."

Sid Kirchheimer is the author of AARP/Sterling's Scam-Proof Your Life.