A data security company has sued Zions Bancorp., claiming that the Salt Lake City-based banking company misused information it obtained from a loan application.
Arcanvs Inc., a provider of data encryption technology that verifies digital signatures, applied for a $200,000 loan from Zions in December 1998.
Arcanvs (pronounced arcanus ) claimed in the lawsuit, filed last week in U.S. District Court in Salt Lake City, that Zions shared business and financial details in the application with Digital Signature Trust Co., a Zions First National Bank subsidiary that competes with Arcanvs.
All of a sudden, information that we were assured was to remain confidential was being discussed with a competitor, Arcanvs president Gordon W. Romney said in an interview. It seems the bank has gotten a little afield of its real business and has gotten protective of its turf.
Zions executives refused to discuss the case. James Holbrook, a lawyer with Callister Nebeker & McCullough, which is representing Zions, said the $17.6 billion-asset company would like to settle the matter out of court. He said lawyers for Zions and Arcanvs have been meeting.
I'm hopeful those conversations will continue even though the lawsuit has been filed, he said.
The suit says that Zions agreed to provide the loan on the condition that Arcanvs agree not to take any legal action against the banking company or its digital signature unit for any actions that may have taken place during the loan process. That violated federal anti-tying laws, Arcanvs alleged.
Mr. Holbrook said Zions requested the contingency so there could be a clean relationship on a going-forward basis.
But Arcanvs' Mr. Romney, a former Citicorp vice president, said Zions' alleged misdeeds not only broke the law but crossed an important line in the relationship between a commercial customer and a bank.
I've been a client with Zions for 30 years and have trusted them implicitly, he said. This hurts me, as a former banker, because I have great respect for the importance of banking integrity.
During the underwriting process, Zions loan officer Howard Swapp raised the concern that Digital Signature Trust, or DST, and Arcanvs might be competitors, giving rise to a potential conflict of interest, according to the lawsuit.
However, Arcanvs management told Mr. Swapp that there was no direct competition because DST focused on banking clients while Arcanvs primarily served the health care and notary industries, the lawsuit said.
Nevertheless, in an apparent effort to ensure that there would be no conflict of interest, Mr. Swapp later showed the confidential information to a DST employee, the lawsuit said. The employee has since left the firm.
Mr. Romney was stunned by Zions' flagrant and malicious abuse of confidential information, according to the court document. Arcanvs subsequently got a loan from a different bank.
Because of a cutting-edge law passed by Utah's legislature in 1995, which gave digital signatures the same authority as written ones, Zions' DST became the first licensed certificate authority. Arcanvs, also based in Salt Lake City, received the second Utah license in 1997.