Texas firm countersues bank in connection with $800,000 cyber theft

Manufacturer seeks about $200,000 and court costs from PlainsCapital bank

A Texas manufacturing firm last week filed a counter lawsuit against PlainsCapital bank of Lubbock in connection with the cyber theft of some $800,000 from its online banking account.

In a complaint filed in U.S. District Court for the Eastern District of Texas, Hillary Machinery Inc. of Plano, charged that PlainsCapital failed to adequately protect the stolen money from online thieves. Just as it would not be "commercially reasonable" for the bank to keep cash unguarded from thieves, it was unreasonable that the bank did not have adequate online protections, Hillary's complaint said.

Hillary Machinery is seeking to recover its losses from the theft along with court costs.

"When we put money into a bank there is a high expectation that the bank is going to protect that money," said Troy Owen, Hillary's vice president of marketing.

Hillary filed the lawsuit just a couple of months after PlainsCapital sued it, asking the same court to certify that its security procedures were "commercially reasonable." In its complaint, the bank noted that it had made every effort to recover the stolen money.

The bank's lawsuit was filed after Hillary demanded that it repay about $200,000, the amount of money not recovered since the theft.

The bank's somewhat unusual lawsuit did not seek anything from Hillary. In its complaint, the bank noted that it had made every effort to recover the stolen money and claimed that the unauthorized wire transfer orders had been placed by someone using valid Internet banking credentials belonging to Hillary Machinery.

The bank argued that it had accepted the wire transfer requests in good faith and was not at fault.

The dispute stems from a series of unauthorized money transfers made from Hillary's online banking account in 2009. The thieves, apparently using valid Hillary online banking credentials, accessed the company's account and wire-transferred a total of $801,495 to various overseas accounts. PlainsCapital recovered about $600,000 of the stolen money last year.

In last week's response to the bank's lawsuit, Hillary insisted that when it entrusted its "vital operating capital" to the bank, it assumed that PlainsCapital would adequately protect the money. The lawsuit comtended that the authentication measures used by PlainscCapital for wire transfer transactions could not protect the company from the kind of theft that hit Hillary.

"Hillary Machinery was not required to secure PlainsCapital's Internet banking system to ensure that its funds were not stolen and was not required to ensure that true multifactor identification was employed by PlainsCapital to counteract the known threat posed by malware, phishing and pharming," the complaint noted. Hillary insisted that if PlainsCapital had used "commercially reasonable" security measures, the unauthorized transfers would have been found to be outside the norm for Hillary.

According to Owen, Hillary has no option but to defend itself against the earlier PlainsCapital lawsuit. "We asked them nicely in person to return our money," Owebs said. "They sued us instead."

He noted that the publicity generated by PlainsCapital's lawsuit has resulted in questions from employees, customers and suppliers about Hillary's ability to absorb the loss.

"After 25 years in business we have a lot of people calling our soundness into question. It's raised a huge trust issue for us, because PlainsCapital chose to make it public," Owen said.

He insisted that Hillary would not be "bullied" and was willing to take the fight all the way to Capitol Hill if needed.

A spokesman for PlainsCapital today contended that the theft had resulted from Hillary's failure to protect its login credentials. "This was never a cyber attack on the bank. We are confident that our systems meet all security requirements," he said.

The spokesman also noted that just because it wasn't publicly disputing Hillary's claims over the actual transactions, doesn't mean it agrees with the company's contentions.

Because of confidentiality requirements, PlainsCapital cannot discuss the details of the unauthorized wire-transfers he said. "That doesn't mean that we agree with what Hillary is telling the media about the transactions," the spokesman said.

The dispute is among several involving banks and small businesses whose accounts have been looted in similar fashion, where hackers used valid login credentials to siphon out substantial amounts of money from small business accounts.

Such disputes are raising fundamental questions about due diligence issues and on whether and how much business customers should be held responsible for protecting their online accounts from hackers.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at @jaivijayan, send e-mail to jvijayan@computerworld.com or subscribe to Jaikumar's RSS feed .

Copyright © 2010 IDG Communications, Inc.

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