Bank says ATM fraud diverted $2 million

Monday, March 22, 1999 | 11:10 a.m.

A small Las Vegas bank says it has been defrauded of an estimated $2 million illegally diverted through an automated teller machine network.

As a result, Business Bank of Nevada, 6085 W. Twain Ave., will take a charge against 1998 earnings. Bank officials said the ATM network is secure and a criminal investigation is proceeding.

The reported loss stems from a dispute between the bank and a company it contracted with to supply cash for an ATM network.

The bank filed suit in District Court alleging fraud and breach of contract against DCI Inc., doing business as NMS Financial Inc., and its sole shareholder, Errol Vestuto.

DCI has filed a counterclaim against the bank also alleging fraud and breach of contract.

Bank President Al Alvarez said today the bank remains financially secure because its holding company, Business Bank Corp., made an unsecured loan of $1 million to the bank to bolster its capital position while it attempts to recover losses.

"Business Bank of Nevada remains financially strong and continues to create a stream of income and profit which should overcome this isolated incident," Alvarez said. "The future earnings coupled with the anticipated recoveries will help to increase the financial strength of the bank."

Alvarez said he could not comment directly on the investigation, but the bank reported that insurance claims have been filed and examiners from the regional office of the Federal Deposit Insurance Corp., which protects the assets of depositors, are completing their own review this week.

The alleged diversion of funds was discovered in early December through the bank's daily monitoring of ATM transactions and electronic settlements. Alvarez said about $2.3 million was initially diverted but about $300,000 was retrieved.

Alvarez explained that the bank had a pretax net operating profit of $1.12 million in 1998 and an after-tax profit of $731,000. Because of the accounting charge caused by the alleged diversion, the bank is now reporting a loss for the year of about $600,000.

Alvarez stressed that the bank is attempting to recover funds during the course of the investigation and that losses could be adjusted downward.

The bank's equity capital level stands at about $10.5 million in the wake of the incident, Alvarez said. That's slightly below the level reported at the end of 1998.

The company's stock hasn't been affected adversely by the incident. Alvarez said most of the stock is owned by the 14-member board of directors. The issue trades over the counter, so the company is not required to file certain performance reports with the Securities and Exchange Commission.

The stock was unchanged today at $15.625, which is about at the middle of the 52-week range of the issue.

Alvarez said that the matter is currently in multiple legal proceedings and that there is an ongoing criminal investigation. Regulatory agencies did not force the holding company to make the infusion of cash.

The Business Bank of Nevada, which changed its name last year from Las Vegas Business Bank, is chartered by the state. Representatives of the Financial Institutions Division of the Nevada Business and Industry Administration could not be reached for comment today. FDIC representatives also could not be reached for comment.

Alvarez confirmed that the investigation involves all aspects of the ATM network, including system processors.

The bank has 41 employees at three branches in Las Vegas. The company completed 1998 with asset growth of 50 percent, deposit growth of 59 percent and loan growth of 31 percent.

"We want every shareholder, depositor, client and friend of the bank to know that this isolated incident in no way affects the ongoing operations of the bank," Alvarez said. "The bank remains financially strong with all core lines of business positioned to continue their profitable growth."