Lenox National Bank is awaiting an FBI update on its embezzlement probe

Three months after the discovery of up to $400,000 in reserve funds missing from the Lenox National Bank, bank officials are still in the dark on the progress of an extensive FBI investigation.

Two long-serving employees who were terminated last November remain potential suspects in the federal case of embezzlement and fraud, but have not yet been charged or arrested.

The joint investigation is being handled by the FBI's Springfield office and Lenox Police.

Police Chief Stephen O'Brien said on Monday that he has been in contact with the bureau, but the status of the case remains unchanged since November. "This is still a very active investigation," he stated.

Bank President Paul Merlino, an executive at Lenox National since 1975, told The Eagle that, following what he has called "a shocking betrayal by two trusted employees," tighter internal security procedures have been deployed.

"We've done everything we can," he asserted. "We're doing more than we did before, we thought we had adequate procedures. They say it's a very difficult situation when there's collusion" involving two employees.

"I'm told the FBI is very, very thorough but works very slowly," said Merlino. He has had no further contact with FBI agents since the investigation began.

"I wish we knew; we're anxious to have it resolved," he added. "It's frustrating, not knowing. I'd like to have their names out there, but it's not my position. It seems unfair to us."

The bank has submitted claims to its insurer to recover the funds stolen from the cash vault, which Merlino described as ranging from $300,000 to $400,000. The missing funds will be replaced through an insurance bond arranged via the Toole Agency, based in Lee and Lenox.

No depositors' funds were affected by the embezzlement, which involved the bank's working capital, Merlino emphasized.

FBI officials did not immediately return a call for comment.

At the time the probe was launched, Mark Karangikis, supervisor of the FBI's Springfield office, said that when completed, the findings will be relayed to the U.S. Attorney's office in Massachusetts.

In terms of the bank's reputation and customer confidence, Merlino commented that "the public has been extremely supportive." On his desk was a pile of cards and letters from customers and well-wishers, including one from state Rep. William "Smitty" Pignatelli, D-Lenox, augmenting personal visits from residents.

The bank president described "a very touching call" he received at home from Josephine Pignatelli, 101, an aunt of the state lawmaker who lives at the Cameron House assisted-living facility and is the town's oldest native resident, according to Town Hall records. Ms. Pignatelli, a former banker, was a Merlino colleague when he broke into the industry in Pittsfield during the early 1970s.

"Some customers were upset at the individuals who were involved," Merlino acknowledged, "but they were not upset at the bank."

"Our big concern right from the beginning was the reputation of the bank," he noted. "It's been built up over years. We've gotten over what's called the ‘reputation risk.' Apparently, we've overcome that. We were trying to be transparent about the situation, we didn't attempt in any way to cover it up."

Maintaining a small-scale bank is challenging, according to Merlino, because of current industry rules and regulations, which he described as "onerous."

"It's not like it was 25 or 30 years ago," he recalled, "when you could make ‘character loans' to somebody you knew. They signed their name and they paid you back." Now, extensive documentation and procedures are required to obtain a loan or open an account.

"The easy thing is to sell out and merge," he added.