A Towson man and his wife are in danger of losing their business after First Mariner Bank held the couple responsible for more than $80,000 in checks it had cleared, but were later found to be fraudulent.
The checks were written to their business, Appel & Cook IT Systems Inc., by a businessman from Africa, who made two purchases of computer equipment. It was later found that the man, who identified himself as Mr. James, had written counterfeit checks off an account in Texas. First Mariner, which cleared the checks, has frozen the couple's business account and issued a claim to have the money repaid.
Mike Merkle and his wife, Karen, said the bank is forcing them out of business. "They talk about being business-friendly, but now they're dragging this on and driving me out of business," Mike Merkle said.
First Mariner attorneys said that Merkle assured that the check was bona fide by endorsing it and that it's not up to the bank to determine whether its business clients have bad customers.
"First Mariner knows nothing about the people Mr. Merkle chooses to do business with in Texas or any other state," attorney John Simcox said. "It is up to him, if he is going to act on a personal check he has received from another party, to verify the information."
Merkle said he believed he was being cautious when the African businessman first called in February, wanting to buy 300 disk drives - an order for $43,022. He knew there was risk in doing business with an overseas company he knew little about. Before sending the equipment to Benin, in West Africa, Merkle waited for the check to clear the First Mariner branch in Pikesville, and the Dallas-based Comerica Bank, from where the money was drawn.
The transaction went so smoothly that, a month later, Merkle followed the same procedure to sell 300 hard drives for $45,000 to the same businessman, this time sending the equipment to an address in Nigeria.
But things, in fact, were not going smoothly.
On April 16, three days after Merkle sent the second order to Nigeria, First Mariner officials told him the two checks were fraudulent and they were freezing his accounts. They also filed a claim against him to pay back the $88,022. Together, the orders accounted for nearly a third of the store's $280,000 in revenue last year.
Provisions of the Uniform Commercial Code say a bank can't hold a customer accountable for fraudulent checks once they have cleared, said Maryland Assistant Attorney General Tom Gounais. But the code also has provisions that allow banks to get around that rule, he said.
"Usually it's in the depository agreement," Gounais said. "If a check for any reason is not finally paid or payment is revoked, the bank can charge it back to you regardless."
The African businessman wrote the checks from the account of the Dallas-based Enchilada Corp., which is a legitimate business that was caught by surprise by the checks to the computer company.
First Mariner officials said Merkle should have been suspicious that a Nigerian was working through a Texas company, and should have asked for a different form of payment, such as a money wire.
Merkle said that Mr. James told him that Enchilada Corp. was a company held in the United States for such transactions.
The apparent scam was discovered after Enchilada executives complained to their bank about checks they didn't write. Comerica Bank, in turn, filed a claim to recoup the money from First Mariner.
"First Mariner is certainly empathetic, and we're looking at the transaction as closely as we can," Simcox said. "If there's a way to avoid any claim back from the Texas bank, then we're going to do that."
First Mariner officials said they don't know how long an investigation will take.
In the meantime, Merkle said his bills have piled up and checks to vendors have bounced. He has barely kept the business open by collecting on past-due accounts. And he has begun packing up his office because he won't be able to afford the $800-a-month rent next month if things aren't settled.
"I'd rather leave on my own than to get kicked out because I can't pay the bill," he said. "I'm just supposed to go out of business waiting for them to get what they believe the Texas bank is responsible for," Merkle said. "My personal and corporate credit is, in the meantime, destroyed."
Check fraud has become more common as computers and graphics software make it easier to duplicate checks. In 1999, $2.2 billion in check-fraud schemes were attempted, and banks lost $679 million, according to the American Bankers Association. In Baltimore County, where Merkle runs his business, there have been 158 counterfeit check case reports filed in the past six months.
"It used to be that there were large counterfeit rings and you had one person who was really good at making the checks," said Baltimore County Police Sgt. Bruce Myers. "People are now making the checks themselves. It doesn't take a lot to get a system for that on your computer." Fraudulent checks are also hard for banks to check.
"If they check the routing number, and it exists, and there is money in the account, they go ahead and clear it," said Tony Ball, a spokesman with the U.S. Secret Service, which tracks check fraud.
The Merkles are struggling to keep their business alive. They've lost staff, including a bookkeeper, and Karen Merkle comes in some days to help with the work.
He worked for the company for 20 years before buying it three years ago.
He has filed a complaint with the Federal Reserve, which passed the case on to the Federal Deposit Insurance Corp. The FDIC will decide if the bank should be held accountable for the checks.