Texas Bank Sues Customer Hit by $800,000 Cyber Heist

A machine equipment company in Texas is tussling with its bank after organized crooks swiped more than $800,000 in a 48-hour cyber heist late last year. While many companies similarly victimized over the past year have sued their banks for having inadequate security protection, this case is unusual because the bank is preemptively suing the victim.

Both the victim corporation – Plano based Hillary Machinery Inc. – and the bank, Lubbock based PlainsCapital, agree on this much: In early November, cyber thieves initiated a series of unauthorized wire transfers totaling $801,495 out of Hillary’s account, and PlainsCapital managed to retrieve roughly $600,000 of that money.

PlainsCapital sued Hillary on Dec. 31, 2009, citing a letter from Hillary that demanded repayment for the rest of the money and alleged that the bank failed to employ commercially reasonable security measures. The lawsuit asks the U.S. District Court for the Eastern District of Texas to certify that PlainsCapital’s security was in fact reasonable, and that it processed the wire transfers in good faith. The documents filed with the court allege that the fraudulent transactions were initiated using the defendant’s valid online banking credentials.

Troy Owen, Hillary’s vice president of sales and marketing, doesn’t dispute that the perpetrators stole their online banking credentials, but said Hillary is still investigating how the information was taken. Owen said the transfers appear to have been initiated from computers in Romania and Italy, among others, and sent to accounts in Ukraine, Russia and other Eastern European nations.

According to a Nov. 12 memo that Owens said PlainsCapital shared with him, the institution’s commercial banking platform requires that each customer not only enter a user name and password, but also “register” their computer’s Internet address by entering a secure access code sent to the e-mail address on file for the customer.

The bank’s memo states that on Nov. 8, secure access code e-mails were sent to a Hillary e-mail address, but that the request came from a computer with an Internet address in Italy. The memo further states that the actual wire transfer requests were made from computers with Internet addresses in Romania.

Owen said no one in his company received any such e-mails on or around the date of the break-in Nov 8th and 9th, and that it is likely whoever stole the company’s banking credentials also intercepted the e-mails.

“It’s pretty ridiculous that the bank is saying their security was reasonable,” Owens said. “The people who run this bank are from an area that still leaves their doors unlocked at night and their keys in the car. These security measures were probably very up to date 10 to 15 years ago, but they’re not in today’s age.”

PlainsCapital declined to discuss the memo or other details of the case, citing the pending litigation. The bank’s president Jerry Schaffner said in an e-mailed statement that “It is evident that the loss incurred by Hillary Machinery, Inc., although regrettable, was not the result of a cyber attack on PlainsCapital Bank.”

Transaction logs shared by Hillary indicate that the majority of the unauthorized transfers were international wires for roughly $100,000 each. But at least $60,000 of the money was sent to more than two dozen money mules, willing or unwitting accomplices in the United States who are often recruited through work-at-home job scams.

A copy of the bank’s complaint against Hillary Machinery is available here (PDF).

Update: Since this blog post ran, the story of Hillary’s fight with Plains Capital has been picked by several mainstream media outlets, including the Dallas Morning News, Forbes, and Fox News.

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