$26 Million Disappeared From Paychecks. Who Was Behind It?

Submitted by subwo

Via MSN

Nicole Ingram was at the supermarket when she got a confusing text. Her payroll check for working as a nursing assistant in New Jersey, which had been deposited into her account, was being withdrawn.

© Patrick Dodson for The New York Times Stephanie Ross-Pettit’s businesses lost thousands of dollars after MyPayrollHR’s sudden closure.

On that morning in September, thousands of workers across the country received a similar notification. In all, tens of millions of dollars in direct deposit payments suddenly disappeared.

The paychecks were supposed to have been electronically routed through an upstate New York payroll management company, MyPayrollHR.

Ordinarily, MyPayrollHR would transfer the funds to a corporate middleman, Cachet Financial Services, which would then distribute the direct deposits to employees nationwide.

But days before, according to federal authorities, Michael Mann, the president of MyPayrollHR, redirected those payroll funds — $26 million in total, according to a separate lawsuit — into his own personal accounts.

That set off a cascade of events. Mr. Mann’s banks found the transfer suspicious and froze his accounts, causing MyPayrollHR to cease operations.

Yet Cachet still distributed millions of dollars into the direct deposit accounts of thousands of workers.

When Cachet realized it had allocated funds that didn’t exist, the company reversed the transactions, taking back money from thousands of workers. One worker in Tennessee had an account overdraft by nearly $1 million.

The shocking development helped uncover a gigantic fraud operation and showed the lack of oversight in the payroll industry.

It also laid bare the vulnerability of the Automated Clearing House network — an electronic network for financial transactions in the United States — which is used by millions of people to move trillions of dollars annually, from salaries to Social Security to mortgage and credit card payments.

Last year, the network said it moved nearly 23 billion electronic payments.

As a result of MyPayrollHR’s actions, business owners in Florida and New York were out of hundreds of thousands of dollars. Workers from Albany, N.Y., to Burbank, Calif., many of them part-time or temporary, with low incomes, lost their jobs, as did the entire staff of about 40 employees at MyPayrollHR. In North Carolina, a school was forced to close.

© Patrick Dodson for The New York Times Senate Majority Leader Andrea Stewart-Cousins has promised “safeguards against future payroll company-caused crises.”

A spokesman for the National Automated Clearing House Association, which oversees the electronic payments system in the United States, said that about 90 percent of workers affected by MyPayrollHR’s shutdown had their money returned.

Still, worried that the MyPayrollHR debacle might hint at a much larger issue, several state senators from New York recently introduced sweeping legislation to tighten the state’s payroll industry.

Gov. Andrew M. Cuomo has also ordered state officials to investigate the industry. As a result, the New York State Department of Financial Services has issued subpoenas for more than 40 payroll processors in the state.

© Scott McIntyre for The New York Times Brad Mete said he spent more than $250,000 out of pocket to pay his employees.

“I was flabbergasted. I was amazed at how we did not catch this before it happened,” said Senator Kevin Thomas, the chairman of the State Senate’s Consumer Protection Committee.

Employers and workers are still struggling to make sense of what happened.

“Who would do this?” asked Stephanie Ross-Pettit, an upstate New York businesswoman who lost nearly $50,000. “Who would do something so terrible that could affect so many people?”

The answer, according to federal authorities, lies in part with Mr. Mann, a shadowy entrepreneur who owned nearly a dozen companies that were based in New York and operated throughout the country, and have now shuttered.

He was arrested and charged with bank fraud on Sept. 10.

Over the last decade, according to federal prosecutors, Mr. Mann created numerous shell companies to fraudulently obtain bank loans.

At the time of his arrest, he and his wife, Kim, were living in a 3-bedroom lakefront home in Northville, N.Y., and owned a Range Rover and a Mercedes-Benz.

At an appearance before a Federal District Court judge in Albany, Mr. Mann admitted to stealing almost $70 million since 2010.

According to a lawsuit filed by one of the victims, as many as 250,000 workers could have been affected by MyPayrollHR’s collapse.

Released on a $200,000 bond, Mr. Mann is awaiting a court date. While he has confessed to his role in the scheme, he did not plead guilty to the bank fraud charge. He faces up to 30 years in prison, a maximum fine of $1 million and five years of post-release supervision.

“I’m surprised as hell he would do anything like this,” said Greg Stack, a businessman who worked with Mr. Mann from 2002 to 2007. “This wasn’t in his character.”

Mr. Mann’s lawyer, Michael Koenig, said that Mr. Mann is cooperating with the authorities.

“Michael has voluntarily and proactively met with and cooperated with the U.S. attorney’s office in order to fully and accurately address recent events,” Mr. Koenig said in a statement. “He will continue to do so but will not be making any public statements.”

In interviews, several people who knew Mr. Mann — close friends, a former executive at MyPayrollHR and employees of schools founded or funded by Mr. Mann — said that they never suspected he was involved in any criminal activity.

“I’d love to tell you the guy had gold chains and diamonds and that he was flashy, but he just wasn’t,” said Gregg Williams, the executive director of a school Mr. Mann co-founded.

Mr. Mann, 49, has virtually no online footprint. Until his arrest, he had no criminal history and little had appeared about him in the media.

Until a few years ago, Mr. Mann’s office uniform typically consisted of jeans and T-shirts. When he began appearing in suits and ties, co-workers ribbed him about the switch.

In retrospect, one former executive at his company wondered if the change in dress was intended to create a businesslike persona as he struggled to stay financially afloat.

A big sports fan, Mr. Mann founded AlwaysLive.com, an online subscription service providing data-rich information and statistics on talented basketball prospects to college recruiters.

In 2016 he opened Lincoln Academy, a small high school in metro Atlanta, which aimed to get teenage basketball prospects into Division 1 college programs.

Larry Davis, the head coach of the school’s basketball team, said Mr. Mann spent lavishly, housing the players in spacious apartments and budgeting for them to eat at restaurants.

After MyPayrollHR was shut down and Mr. Mann’s accounts were frozen, both AlwaysLive.com and Lincoln Academy — which had relocated to Winston-Salem, N.C., in 2017 and at the time had 26 students — were shut down.

Victims read news reports after Mr. Mann’s arrest and were struck by how few details existed about him.

“I hear nobody really knows Michael Mann,” said Zella Hartfield, a nursing aide whose direct deposit was reversed on one occasion. “All I know is he really messed up my life.”

After her paycheck money was taken out, Ms. Hartfield struggled to pay for child care for her 5-month-old baby.

One woman in North Carolina, whose direct deposit disappeared as a result of the shuttering of MyPayrollHR, said she was unable to buy supplies as Hurricane Dorian approached, according to court documents from a lawsuit she filed.

The company’s abrupt closing also blindsided business owners.

Once Brad Mete, who co-owns staffing agencies in Fort Lauderdale, Fla., and Miami, realized his nearly 700 employees would not receive their MyPayrollHR direct deposits, he and his partners paid the workers’ salaries out of pocket, spending more than $250,000. “It was the moral thing to do,” he said.

Mr. Mete says he realizes he might not see that money again.

Ms. Ross-Pettit, whose collection of small businesses in Troy, N.Y., employed about 100 people, did the same for her workers, at a cost of more than $50,000.

Officials from the New York State Department of Financial Services said they did not know when employers would recoup any lost revenue or whether they would receive any compensation at all.

Many people, like Ms. Ingram and Ms. Hartsfield, are still waiting to be repaid. Virtually no employers, including those who paid out of pocket, like Mr. Mete and Ms. Ross-Pettit, have been reimbursed. Many fear they never will.

According to federal prosecutors, after Mr. Mann redirected the funds, Cachet would attempt take back money it had deposited into the workers’ accounts. If the attempt failed, Cachet would try again.

Payment reversals are rare, but allowed within the automated clearing house network under very limited circumstances — for legitimate errors, for example, according to an official familiar with the payments network.

Withdrawing rightfully owed funds because of a processor’s own mistake or lack of oversight however, as Cachet did, is prohibited by National Automated Clearing House Association rules.

In the State Senate, Mr. Thomas is sponsoring a bill that would allow workers to collect up to three times the amount of an original deposit if they miss a paycheck because of a payroll company’s failure.

“Finding out that a company can deposit money into someone’s account and not only take it back, but take back more than they deposited — it’s just shocking to me that this occurred and it’s what compelled me to take action,” said Mr. Thomas.

Other bills in the legislative package would establish criminal penalties for payroll companies that purposefully misappropriate workers’ funds, provide tax credits to employees who are victimized by a payroll company’s errors and make it a crime for a company to claw back rightfully owed wages.

The MyPayrollHR scheme “severely damaged our confidence in the entire payroll industry,” said Andrea Stewart Cousins, the State Senate’s majority leader.

Federal authorities have referred to Mr. Mann’s actions as an old-fashioned “kiting” scheme, a shell game in which he shuffled nonexistent funds from one business account to another.

A lawsuit filed against Cachet by victims of the financial fraud claimed that instead of confronting MyPayrollHR, Cachet prioritized covering the costs at the expense of workers. “Cachet elevated that crisis into the stratosphere,” the suit said.

Wendy Slavkin, an attorney for Cachet, said, “What MyPayrollHR did, we had never had that happen before,” adding that Cachet eventually returned the lost wages to the accounts. “We’re the real victims here.”

Without her paycheck, Ms. Ingram, a mother of six, said she could not pay the rent on her North Brunswick, N.J., apartment. Her gas was turned off. She didn’t have bus fare to go to work.

“It feels like the whole world shut down on me,” she said. “I lost everything.”

Alain Delaqueriere and Sheelagh McNeill contributed research.

-----------------------------------------------------
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal

-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)

Click to visit the TBP Store for Great TBP Merchandise