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County sues bank for stolen money

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By The Staff

SHEPHERDSVILLE - Claiming negligence and breach of contract, Bullitt Fiscal Court and county treasurer Kenann Bradley have filed a civil lawsuit against First Federal Savings Bank.

The lawsuit results from the loss over $310,000 suffered by the county after a cyber-crime occurred in late June.

The lawsuit, which also listed First Federal employee Gloria Caldwell as one of the defendants, was filed Wednesday in Bullitt Circuit Court.

According to the lawsuit, First Federal was contracted to provide financial services to the county since August 2007. Included in the agreement was a resolution approved on Aug. 11, 2007, to allow on-line banking functions to be conducted. That resolution set out the duties of all parties.

After the June 18, 2009, payroll was paid and until June 30, 2009, the lawsuit alleges that unauthorized transactions were done as part of a cyber-crime and paid from the county's payroll account by First Federal.

The payments of under $10,000 were made to fraudulent employees and "exceed the normal and customary amounts paid to Bullitt County employees," according to the lawsuit.

Those transactions were made "outside the normal and ordinary course of business of Bullitt County," the suit continued.

The unauthorized payments were made to banks in Georgia even though employees live and work in and around Bullitt County.

On June 25, Bradley noticed an incorrect account number of an "employee" of Bullitt County but told Caldwell that the person was not an employee of the county.

The suit said that First Federal and Caldwell were "facilitating the cyber-criminal" and that both knew or should have known that a fraudulent scheme was being taken and should have taken immediate steps to protect Bullitt County.

On June 29, 2009, Bradley again notified First Federal about the batches being made on the county account.

"Caldwell and First Federal continued to take no action to protect the interests of Bullitt County," according to the suit.

On June 30, action was taken to reverse some of the transactions and $105,813.06 was recovered. If such action was taken earlier, the suit contends more money may have been recovered.

"Following the recognition of the cyber-criminal scheme, First Federal had a duty to assist in the recovery of lost funds," the lawsuit alleges. "First Federal has been uncooperative in Bullitt County's efforts to recover the lost funds."

The county alleges that the bank and Caldwell breached their duties by failing to follow ordinary and prudent banking practices.

It also alleges that the bank breached the contract for failing to comply with the terms of the resolution.

The county alleges that the bank suffered a breach of duty of good faith and fair dealing for not having commercially reasonable security procedures in place and for its failure to assist in the recovery of lost funds.

And the county seeks a refund of the lost funds under terms of Kentucky Revised Statutes Chapter 355.

The county is also asking for unspecified punitive damages to include compensatory and punitive damages, costs and attorney fees. The county and Bradley have asked for a jury trial.

County attorney Walter A. Sholar was assisted by Laurence J. Zielke of Zielke Law Firm in Louisville.

A lawsuit gives just one side of the case.

First Federal officials have claimed from the beginning that there had been no breach into the bank's security system. They have claimed the issues arose on the county's side of the partnership.

The county's banking services remain at First Federal. However, the county is currently accepting proposals for banking services with a decision possible by the Aug. 18 meeting.