Shares of KeyCorp fell on Tuesday after the regional bank disclosed it discovered fraudulent activity that could cost the company up to $90 million.
KeyCorp said in an 8-K filing the fraud involves a "business customer" and was discovered "on or about" July 9. The fraud took place in the third quarter of this year, which started earlier this month, the company said.
The customer in question is Interlogic Outsourcing, Inc., a payrolls processing company based in Elkhart, Indiana, according to a lawsuit. On July 9, KeyBank National Association — a subsidiary of KeyCorp — filed a lawsuit against Interlogic claiming the payments processor "fraudulently initiated wire transfers." The suit also claims, according to a report from The South Bend Tribune, that Interlogic CEO Najeeb Khan knew there weren't sufficient funds to cover the transfers.
Interlogic did not immediately respond to CNBC's request for comment.
KeyCorp shares fell 1%. The loss shaves off about $178 million from KeyCorp's market cap, bringing it down to about $17.56 billion from $17.735 billion.
"The Company is working with the appropriate law enforcement authorities in connection with this matter," KeyCorp said in the filing. The bank added it believes this was an "isolated" incident based on its "review of the circumstances of the fraudulent activity" and it will "pursue all available sources" to mitigate a potential loss.
KeyCorp shares were up 19% this year through Monday's close. The stock has outperformed the SPDR S&P Regional Banking ETF (KRE) in 2019, which is up 13.1%.