Cardtronics Inc. temporarily shut down nearly 4% of its U.S. company- and merchant-owned ATMs in February after FBI agents arrested the owners of a New York-based armored-car service and charged them with fraud, according to a recent U.S. Securities and Exchange Commission filing from the Houston-based ATM independent sales organization.
The ISO temporarily took off line more than 1,000 ATMs serviced by Mount Vernon (N.Y.) Money Center Corp. after federal agents on Feb. 8 arrested the company’s president Robert Egan, 64, and its chief operating officer, Bernard McGarry, 50.
Cardtronics owned and operated 28,048 U.S. ATMs as of March 31.
Mount Vernon supplied vault cash to more than 5,300 ATMs, and Cardtronics was one of the company’s customers, according to the federal indictment and Cardtronics’ SEC filing.
“The company was required to convert over 1,000 ATMs that were being serviced by [Mount Vernon] to another third-party armored-service provider, resulting in a minor amount of downtime being experienced by those ATMs,” Cardtronics wrote in its SEC filing.
Cardtronics did not detail the length of the ATM shutdown or how it affected cash withdrawals. Cardholders made an average of 606 cash withdrawals from Cardtronics’ ATMs during the first quarter, up 4.3% from 581 during the same thee-month period last year.
Preet Bharara, the U.S. attorney for the Southern District of New York, indicted Egan and McGarry for allegedly defrauding banks, other financial institutions, retailers, hospitals and universities out of $50 million.
The U.S. Attorney’s Office charged both men with conspiracy to commit bank and wire fraud and with six counts of bank fraud. It also charged Egan and McGarry with violating contracts governing their ATM vault-cash service business by commingling different banks’ and other clients’ money in its vault and bank accounts.
“Instead of segregating cash for each of its clients, [Mount Vernon] personnel, acting at the direction of Egan and McGarry, took whatever cash that arrived in the vault, regardless of its source, to fill the next day’s ATMs,” the indictment said.
Commingling funds has resulted in another headache for Cardtronics’ executives, according to the SEC filing. The U.S. Attorney’s Office placed Mount Vernon Money Center in receivership, and Cardtronics executives are working with the court-appointed receiver.
“Based on the receiver’s report dated March 1, 2010, and filed with the court on the same date, it appears that a portion of the vault cash that was delivered to [Mount Vernon] on our behalf was either commingled with vault cash belonging to [Mount Vernon’s] other customers or was misappropriated by [the company]. We estimate that the amount of vault cash held on our behalf immediately prior to the cessation of [Mount Vernon’s] operations totaled $16.2 million,” Cardtronics told the SEC.
The company hopes to recover its vault cash, but it is uncertain how much of the funds it will obtain. Cardtronics said, however, insurance polices will cover “residual cash losses resulting from this incident, less related deductible payments.”
