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Slideshow: 10 Massive Security Breaches

Two recent lawsuits highlight the murky online security waters that smaller businesses wade in with their banks, and show that SMBs can't rely too heavily on their banks for protection against account fraud.

Patco, a family-owned construction firm in southern Maine, fell prey to the ZeuS botnet in May 2009. Hackers bilked its account with Ocean Bank for more than $588,000 before the fraudulent activity was detected and stopped. The bank recovered roughly $243,000. Patco sued Ocean Bank for the balance, but it won't see a dime: A U.S. District Court magistrate in Maine recently recommended the case be dismissed, citing the bank's accordance with Federal Financial Institutions Examinations Council (FFIEC) security guidelines.

It's a case banking and security experts are calling a potential landmark. As a precedent, it means SMBs--not their banks--are on the hook if their online banking credentials are compromised by malware or other means.

"Most [SMBs] just assume they're OK, so if there's some kind of fraudulent activity the bank's going to take care of it," J.R. Smith, CEO of online security firm AVG, said in an interview. "This is one of those wake-up calls where people need to be put on notice: The bank isn't always going to be responsible."

A ruling in a similar case, however, followed closely on the Patco lawsuit's heels. Experi-Metal, a Michigan-based manufacturing firm, sued Comerica after it was robbed of more than $1.9 million by hackers in early 2009. At the surface, the case bears quite a bit in common with the Patco suit, yet it produced an entirely different outcome. U.S. District Court Judge Patrick J. Duggan ruled earlier this month in favor of Experi-Metal, requiring the bank to reimburse the company's losses.

Within the span of a month, two very different precedents were handed down. So who's ultimately responsible for online account security--bank or business?

"There's no regulation that manages this kind of scenario," Avivah Litan, an IT security analyst at Gartner and former banking executive, said in an interview. "The law hasn't kept up, the regulators haven't kept up, and you're going to get a different opinion from every judge."

Court documents reveal the details of each hack, and just how simple it is for an unsuspecting employee to give criminals carte blanche to the company's coffers with the click of a mouse and a few keystrokes.

In the Patco case, hackers used an employee's online banking credentials to initiate six Automated Clearing House (ACH) transactions totaling more than $588,000 during a one-week span in May 2009. According to the court ruling, indicators of the ZeuS trojan were found on the employee's computer, but it was later quarantined and deleted by an outside IT consultant who ran an anti-malware scan. "Without the configuration file, there is no way to tell whether the particular Zeus/Zbot malware version indicated by the remnant on Patco's computer was programmed to intercept online banking credentials," the ruling reads.

As a result, Ocean Bank contended that Patco couldn't prove that malware was to blame and not some other means, such as the employee sharing access credentials with a third party. The 72-page ruling centers largely on arguments between Patco and Ocean Bank as to whether the latter's security practices did enough to protect its customer; in granting the motion to dismiss, the court effectively said they had.

"I think in this case that the legal definition of 'reasonable security' was very tightly aligned with FFIEC guidance," said Tiffany Reilly, VP of marketing at Guardian Analytics, a company that makes security software for banks. Reilly said in an interview that the ruling, though favorable to Ocean Bank, wasn't exactly a resounding endorsement of its security practices. "If you read the judgment, the magistrate even says the bank could have, and probably should have, done more to enhance their protections to stop this type of fraud."

The ruling states, for example, that none of the unauthorized transactions were manually reviewed by bank personnel, even though the transfers were initiated from devices and IP addresses that no one at Patco had used before, and directed to accounts that Patco had never sent money to in the past. According to the ruling, one of the transactions, for $115,620.26, "was larger than any ACH transfer Patco had ever made to third parties. Despite these unusual characteristics, the Bank again batched and processed the transaction as usual."