Palisades Park, Mariner's Bank settle over breach that drained $500K from borough accounts

·4 min read

PALISADES PARK — The borough has reached a settlement with Mariner's Bank over hundreds of thousands of dollars that were drained from the borough's account in 2019 in fraudulent bank transfers.

A lawsuit filed in state Superior Court last year claimed Mariner's Bank failed to provide commercially reasonable security procedures and failed to accept payment orders in good faith. It alleged breach of contract, breach of fiduciary duty, negligence and consumer fraud, among other claims.

The settlement was approved last week, but details were not made public due to a gag order, said Borough administrator Dave Lorenzo.

"The borough was made whole and the insurance company was made whole," Lorenzo said. "Every taxpayer's dollar was accounted for."

A phone message left with Mariner's Bank was not returned.

Mariner's Bank sold itself to Spencer Savings Bank for an undisclosed amount, the two banks announced in the summer. Bank executives said in a statement that the merger would create one bank that uses the Spencer name and has about $4 billion in assets. They expected to obtain state and federal approval and close the merger in the fourth quarter of this year.

The borough lost $497,655 in four unauthorized electronic payments issued directly from its accounts in January 2019.

The borough recovered $172,000 from the bank and $323,651 from its insurance companies — the South Bergen Municipal Joint Insurance Fund and the Municipal Excess Liability Joint Insurance Fund — under its crime policy and computer fraud coverage.

After the attack, the borough closed all of its Mariner's Bank accounts, which totaled nearly $10 million, and moved the funds to ConnectOne Bank, Lorenzo has said.

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A Mariner's Bank investigation determined that the funds were accessed and authorized through the borough's systems and not through a breach of the bank's systems, Frank Giancola, Mariner's Bank president and CEO, said in 2019.

The transactions were not accomplished via wire transfer, but through the borough's own authorized automated clearinghouse origination protocol, Giancola said.

However, the borough maintains that the bank should have identified the fraudulent transfers.

What happened?

The borough had more than $9.7 million with Mariner's Bank across eight accounts as of Dec. 31, 2018.

Throughout its 13-year relationship with the bank, the borough generally authorized only six types of transactions.

Any "fedwire" transfers initiated by the borough generally followed the same multistep procedure, the lawsuit claimed. Before a transfer could occur, the borough would fax a wire request to the bank on borough letterhead with the tax collector's stamp and signature. The fax would identify the account to be debited, the beneficiary's information, the dollar amount and a description of the transfer.

The bank would then return an "outgoing wire transfer request" form to the borough for completion, according to the suit, and the borough would fax the completed form back to the bank. The bank would then confirm the wire transfer through a phone call, and after completion the bank would return a transfer confirmation to the borough.

"Throughout its decade-long relationship with the Bank, the Borough does not recall ever initiating an outgoing bank-to-bank transfer that did not follow this procedure," the lawsuit says.

Between Jan. 19 and Jan. 24, 2019, four unauthorized automated clearinghouse payment orders were made from the borough's account through the bank's online banking system and went undetected for nearly a week.

  • Jan. 22, 2019: $99,000 was transferred under the description "payroll2."

  • Jan. 22, 2019: $119,825 was transferred under the description "payroll2."

  • Jan. 23, 2019: $242,140 was transferred under the description "bus pay."

  • Jan. 24, 2019: $36,690 was transferred under the description "pp bus3."

Mariner's Bank never picked up on the fraudulent transfers, according to the suit. Instead, a Wells Fargo branch in California noticed suspicious activity in one of its accounts that was receiving the transfers and notified the Palisades Park Police Department.

Kristie Cattafi is a local reporter for NorthJersey.com. For unlimited access to the most important news from your local community, please subscribe or activate your digital account today.

Email: cattafi@northjersey.com

Twitter: @KristieCattafi

This article originally appeared on NorthJersey.com: Palisades Park, Mariner's Bank settle lawsuit over stolen money

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