Missing check costs glass firm $160,699

What happens when a check is deposited and it gets lost somewhere in the clearing process?Worse, the missing check isn't discovered for a couple of months, even though the bank credited the deposit.Glassmasters, a stained-glass company in Mechanicsville, found out the hard way.

It took the hit when the bank deducted the amount of the deposit.

For a small company, it was big one: $160,699.

"We are resilient," said Martha Gibby, chief executive officer. "We aren't going to let it be the end of our story, but I will say it's been a major struggle."

The company has muddled through. It laid off 22 people for four weeks until the cash flow improved.

Plus, Glassmasters borrowed money with interest to make up for the money it assumed it had. Now, it's facing legal fees, all for a check that was good for weeks after it was deposited.

By the time the missing check was discovered and a cloned check was run through the system, the company that wrote the check had filed for bankruptcy protection. Its assets were fro- zen. That's when the money was debited from Glassmasters' account.

Glassmasters is part of Omnia Corp. It manufactures lamps and art pieces by applying enamel paints to glass and using a kiln to stain the paints into glass.

The customer was The Museum Co., a retail chain store. The Kier Group, a private equity group, bought The Museum Co. in April 2002. Glassmasters, a subsidiary, was part of the deal.

The Kier Group spun off Glassmasters, selling it to Gibby and other employees in September 2002. The Kier Group filed for bankruptcy protection last May, when the check troubles came to light.

The check had been deposited Feb. 27, 2003. After deposit, it was lost for 70 days before any action was taken. During those 70 days, checks written by the same customer did clear the system.

Checks are processed through the Federal Reserve Bank. Mistakes occur every day, said Dave Beck, vice president with the Federal Reserve Bank of Richmond. Beck works in the Baltimore office, where 2 million checks are processed every night.

An average of 15 errors occur for every 100,000 checks that move through the system, Beck said.

Nearly all are resolved, he said. Bundles of checks could be missing or a check might be listed, but not actually included in a bundle. "Sometimes they will just show up in other places," he said.

Some errors are caught on the day of processing. The backlog for making adjustments is usually two days, but that doesn't mean every case is solved in two days, Beck said. It could be a couple of weeks.

"Typically, things don't stay outstanding for more than 20 or 40 business days at most."

If a missing check is not found, the depositing bank creates a photo in lieu of the check and it clears, Beck said.

In this case, it didn't clear.

Glassmasters tried to resolve the problem with bank regulators as well as Citizens & Commerce Bank, its bank, and SunTrust Banks Inc., the clearing bank for Citizens & Commerce.

Negotiations got nowhere. The case of the missing check is heading to court.

Glassmasters is suing Citizens & Commerce of Richmond and SunTrust of Atlanta for the amount of the check plus attorneys fees. The case will be heard April 26-27 in Henrico County Circuit Court.

"We cannot comment on the specifics of this case since it is in litigation, but we have been responsive to our customer and met with them to work toward a mutually agreeable resolution," said SunTrust spokesman Hugh Suhr.

"Unfortunately, we were unable to do so. We believe [that] their charges are without merit and that our position will be upheld by the court."

Glassmasters charges that SunTrust failed to operate in a prudent manner in handling its deposit.

No one questions whether Glassmasters made the deposit. It has the receipt. But the original check from The Museum Co. issued under FleetBank was never found.

"It is a huge mess," said Jacqueline L. Dickinson, vice president of Glassmasters. "Just what does 'FDIC-insured' mean? Aren't deposits supposed to be insured?"

The Federal Deposit Insurance Corp. does insure a deposit up to $100,000. Glassmasters asserts that it should be entitled at least to that amount. But this is an unusual case.

Virginia law says a bank is not liable for insolvency or misconduct of another bank or person or for the loss or destruction of an item in the possession of others in transit. [SunTrust operates under Georgia banking laws, but those are almost identical to Virginia's.]

"Can you believe this law?" Dickinson said. "Banks are simply not responsible. Is this what the state of Virginia is saying to the citizens of Virginia?"

600450 Missing check costs glass firm $160,699 glassonweb.com
Date: 15 March 2004
Source: Timesdispatch.com

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