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Judge rules against trial in lawsuit by victim of $588K cyber heist

Jaikumar Vijayan, Computerworld | June 7, 2011
Patco alleged that Ocean Bank did not do enough to stop illegal transfers from its account

A Maine judge's ruling in a case involving a business that sued its bank after losing $345,000 in a cyber heist could set a precedent about how diligent companies must be in protecting their assets online.

Patco Construction Company, a family-owned business in Sanford Maine, sued Ocean Bank in 2009 after cyber crooks broke into the company's online account and siphoned out nearly $589,000 via unauthorized Automated Clearing House (ACH) transfers.

About $243,000 worth of transfers were successfully blocked by the bank after the fraud was discovered. However, Patco was left on the hook for the remaining $345,000 -- plus interest charges on more than $100,000 the bank used from Patco's credit line to cover the illegal transfers.

In its lawsuit, Patco charged Ocean Bank with negligence and breach of contract for failing to spot and stop the unauthorized ACH transfers.

The bank put the blame for the loss on Patco. The bank noted that it was only because Patco allowed its online banking credentials to be compromised that thieves were able to log in and steal money in the first place. Ocean Bank insisted that it processed the ACH requests in good faith after it verified that the proper IDs, passwords and answers to challenge response questions.

Patco claimed that the bank should have spotted the illegal transfers because they were out of character with previous transactions it had made. Patco also blamed Ocean Bank for not implementing stronger authentication mechanisms such as token-based authentication and out-of-band verification, which a large number of banks were using at the time.

According to Patco co-owner Mark Patterson, the unauthorized transfers to out-of-state bank accounts did trigger warnings inside Ocean Bank, just no action. "Alarms were going off all over the place, but the unfortunate part is that the bank was not watching them," he said in an interview Tuesday. "It's not their problem. They're not responsible for security."

The hackers apparently installed the Zeus password stealing malware on a Patco computer and then used that information to log into the online Ocean Bank account, Patterson said. "Somehow somebody opened up the wrong spam email or whatever, and Zeus malware was put on our computer."

After waiting for the account to fill up, the thieves quickly began moving cash out of Patco's account to money mules all over the U.S. By the time Patco realized what had happened, the thieves had been moving about $100,000 per day for several days.


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