An appellate court in Richmond, Va., has upheld a $10 million decision in favor of Hitachi Credit America in a fraud case against the former Signet Banking Corp.

Signet, which was bought by First Union Corp. of Charlotte, N.C., in 1997, was sued by Hitachi for its role as lead lender in a $350 million credit to a man who pretended to work for Philip Morris Cos.

Edward J. Reiners posed as a Philip Morris executive claiming to need financing for a top-secret, offshore nicotine-research center.

Mr. Reiners, who at one time had worked for Philip Morris, later admitted that he fabricated the entire story. He pleaded guilty to money laundering and bank fraud in June 1996 and is serving time in prison. The embarrassing incident left Signet disgraced and its six participating lenders, one of which was Hitachi, unable to recover all their money.

"In an effort to land Philip Morris as a client, Signet bent the rules quite a bit," said Brian Sher, a Chicago lawyer representing Hitachi.

Signet itself lent $81 million to the scam artist, its largest loan ever. Mr. Sher said Signet "flat-out lied" about its knowledge of Mr. Reiners. "'Know your borrower' came into play here," Mr. Sher said.

Knowing bank customers has become a big issue in Washington. Rules have been proposed that would require banks to track their customers' transactions and notify law enforcement officials of irregular activity. But the proposals have been blasted from many quarters as too intrusive.

In the scam, Hitachi loaned $24 million to Mr. Reiners. The Federal Bureau of Investigation recovered about $200 million of the $350 million banks had lent, and Hitachi was repaid $18 million, said Mr. Sher.

Hitachi sued Signet for the remainder of its money in 1996. A U.S. District Court in Richmond judged Hitachi was due $10 million, including interest and other costs, in its breach of contract and fraud lawsuit.

First Union, on Signet's behalf, "has taken the initial steps to appeal" the appellate court decision, said a spokeswoman. The company declined to comment further.

If the judgment is eventually paid, Hitachi would be the only lender to recover 100% of its loan, Mr. Sher said.

The other lenders involved are NationsBank Corp., which lent $60 million and recovered $42 million; CoreStates Financial Corp., which lent $20 million; Austria's Creditanstaldt-Bankverein; Long-Term Credit Bank of Japan Ltd.; and Bank of Montreal, which loaned $87 million.

Philadelphia-based CoreStates, which had also sued Signet independently, has since been acquired by First Union. The CoreStates lawsuit was dismissed after First Union bought the company.

More than $100 million of the money loaned is still missing. According to Mr. Sher, John Ruffo, an accomplice of Mr. Reiners who was convicted of similar charges, failed to report for the start of his prison sentence last month. He is still missing.

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