CLEVELAND — A Cleveland-based bank fears it could lose up to $220 million, alleging an Elkhart-based payroll company ordered fraudulent wire transfers that led to a $122 million overdraft earlier this month.
KeyBank is suing Interlogic Outsourcing Inc. and CEO Najeeb Khan on claims of fraud and breach of contract. A federal civil lawsuit was filed in Cleveland July 9 and then updated with amended information the next day, court information shows.
The suit also charges Interlogic is insolvent.
Interlogic’s website states the company provides payroll processing and human resources services to thousands of business clients locally and nationally. The site does not list a profile of Khan as CEO on its corporate leadership page.
In the lawsuit, KeyBank alleges Khan directed the transfer of about $250 million from the Lake City Bank accounts of two Interlogic subsidiaries into Interlogic’s accounts with KeyBank around July 3 and July 5. An additional $127 million was also deposited for business services.
Interlogic then had KeyBank issue dozens of wire transfers, adding up to about $212.5 million, to entities through Berkshire Bank, Wells Fargo Bank and JP Morgan Chase around July 5 and July 8, according to the allegations.
But after the wire transfers were initiated, KeyBank learned Lake City Bank stopped the checks that went from Interlogic’s subsidiaries’ accounts into the company’s KeyBank account due to insufficient funds. The result was funds were not available to cover the approximately $212.5 million in wire transfers, according to the lawsuit.
KeyBank accuses Khan of knowing the Lake City Bank accounts had insufficient funds. The suit then blames his actions for leading KeyBank, “to transfer approximately $220 million in funds” to Berkshire, Wells Fargo and Chase.
“Key is aware that the shortfall is approximately $122 million and is concerned that its exposure could amount to the full $220 million in wire transfers previously completed,” the lawsuit states. “KeyBank … is in immediate jeopardy of losing approximately $122 million as a result of the wrongful conduct by Khan and Interlogic.”
The lawsuit also names Berkshire, Wells Fargo and Chase as defendants as part of a process to halt the transferred funds.
KeyBank seeks legal damages against Khan and Interlogic, as well as a court order requiring the other banks to hold money they received in the transfers and recover any of the funds that were disbursed, according to the suit.