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KeyBank claims alleged fraud could cost bank $122 million

KeyBank has "lost, or is in immediate jeopardy of losing" about $122 million as a result of alleged fraud by an Indiana-based payroll processor, according to a lawsuit filed by the bank against the company.

The South Bend Tribune in Indiana first reported that Key filed suit in federal court against an Elkhart, Ind.-based payroll processor, Interlogic Outsourcing, and Najeeb Khan, identified as the company's owner, president and CEO.

Key in a regulatory filing said it was investigating a "processing irregularity that indicates fraud has been perpetrated by a single business client," but did not identify the client. Key said the alleged fraud was uncovered last week, and that law enforcement was notified.

"We want to emphasize that our clients' information and funds are secure," Key said in a statement. "We will continue to investigate and pursue this matter seeking resolution for all our stakeholders."

Key is based in Cleveland, and Buffalo is its Northeast regional headquarters.

Key in its regulatory filing said the alleged fraudulent activity could cost the bank up to $90 million, net of tax.

"The ultimate financial impact could be lower and will depend, in part, on (Key's) success in its efforts to recover the funds," the bank said. "(Key) plans to pursue all available sources of recovery and other means of mitigating the potential loss."

The lawsuit, filed in Ohio, claims that Interlogic caused Key to process wire transfers from Interlogic's accounts that lacked sufficient funds.

"KeyBank has processed approximately $122 million in wire transfers as a result of defendants' wrongful conduct," Key said in its suit.

"Accordingly, KeyBank has lost, or is in immediate jeopardy of losing, approximately $122 million as a result of the wrongful conduct of Khan and Interlogic," the bank said in its suit.

Key in an amended version of the suit said it is concerned that its exposure could amount to $220 million in wire transfers that were previously completed to Berkshire Bank, Wells Fargo Bank and JPMorgan Chase. Those three banks are also named as defendants in the suit.

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