Special to The Eagle

LENOX -- Following what Lenox National Bank President Paul Merlino called a "shocking betrayal," two long-time "trusted employees" have been dismissed and are under active FBI investigation as suspects in a federal case of embezzlement and fraud.

"The bank is safe," Merlino emphasized, explaining that the missing funds are covered by Lenox National's insurer. Based at the U.S. Treasury Department, the Office of the Comptroller of the Currency in Washington, D.C., protects, charters, regulates and supervises all national banks, large and small.

While Merlino said he is not permitted at this time to disclose the amount of money embezzled from the bank, as uncovered by internal and external auditors earlier this month, multiple Town Hall sources put the loss at somewhat more than $300,000.

Since no arrests have been made yet, Merlino said he could not disclose the names of the employees suspected other than to describe them as tellers.

No funds are missing from customers' accounts, the president of the county's smallest bank told The Eagle on Monday afternoon, since the losses came from working capital and reserves. In any case, above and beyond the bank's own insurance, the Federal Deposit Insurance Corp. (FDIC) protects customers from losses, at least $250,000 per account.

"The bank is very, very well-capitalized," he said. "We are a strong bank. We exceed all federal guidelines for capital adequacy." Lenox National employs 14 people.

"It's been emotional," Merlino acknowledged. "We tried to be transparent with everyone so rumors wouldn't get started. It's been a good bank for the community, and we have to assure our customers. Many people who've contacted us have been very, very supportive, they feel bad for the bank. We've had no loss of business."

"The bank is here, it's operating, it's safe and sound, it's going to continue, we will get through it," he said. "I'm here, I sit right in the front to answer any questions and receive comments from the public. Anyone who has any concerns whatsoever has access to me. It's an important part of the community and I think the community feels that, too. It's not the money, it's the reputation we have to protect."

"I have tears in my eyes every day," he said, ever since learning two weeks ago that the money had been stolen from the bank's cash vault. "I feel betrayed. It's sad for us." Merlino has been an executive at the bank since 1975. Lenox National, housed in an historic Main Street house, was founded in 1889. In its early days, it was located in the Lenox Library and then at Town Hall.

"We're a $65 million bank," he said, referring to assets, but he declined to disclose the number of depositors "for competitive reasons." In 2010, assets were pegged at $56 million, up from $50 million in 2004. The federally chartered bank owned by its stockholders but its shares not publicly traded.

It is one of the only independent, free-standing community banks in the region.

"We're all shocked," Merlino said. "We're a small bank but we're an important part of the town. We've worked hard to keep this an independent bank, to meet all the regulations and federal guidelines. It's good for Lenox and the surrounding small towns to have their own bank, there aren't many left, where people can walk in, we know the customers, we know their families."

"We are absolutely saddened and upset over the outright betrayal by the accused employees," Merlino wrote in a recent letter to stockholders. "They were trusted co-workers."

In a separate mailing to customers that went out last week, Merlino emphasized that the bank has "engaged in a full review of its internal procedures and will implement additional security measures to combat internal fraud."

"The Board of Directors took immediate and swift action to inform the bank's auditors, our insurance carrier and appropriate federal, state and local law enforcement agencies," Merlino wrote. The FBI is the agency handling the full criminal investigation, he said.

The FBI had no immediate comment on the case.

Merlino, near tears at times during the Monday interview with The Eagle, cited one significant depositor who called on Monday, "wanting to put a lot of money in the bank," he said.

"We'll be here, tomorrow, the next day, the next month and the next year," Merlino stressed. "The reputation of the bank is secure."

To contact Clarence Fanto:

cfanto@yahoo.com

(413) 637-2551