ALBANY — Amid the continuing probe into tens of millions of dollars in missing payments by a Clifton Park financial firm, state legislators Wednesday announced a sweeping set of proposals to help prevent payroll fraud.
The crisis that erupted two weeks ago sucked in many of MyPayroll HR’s 4,000 clients, whose employees had one or even two weeks’ worth of direct deposit paychecks removed from their bank accounts.
The state Senate’s Democratic majority said Wednesday it had introduced a package of measures to reduce the likelihood of this happening again. It would:
- Establish criminal penalties and liability for misappropriating payroll funds;
- Empower wronged employees to take civil action, receive tax credits for lost wages and receive as much as treble damages from wrongdoers;
- Ensure employees’ funds are not wrongfully withdrawn from their bank account if the payment amounts were correct and correctly timed; and
- Require the state departments of Financial Services and Taxation and Finance to study the payroll services industry and report to the Legislature and governor. Gov. Andrew Cuomo, also a Democrat, early on called for the Department of Financial Services to investigate the matter.
The sponsor of this last measure is state Sen. Neil Breslin, D-Albany. In a news release, he said: “By further studying this industry we can better assess whether additional consumer protections are necessary and whether any legislative and/or regulatory changes are needed to ensure the credibility of this industry.”
Shortly after Labor Day, MyPayrollHR closed its office at 855 Route 146 in Clifton Park and became unreachable by phone or email as thousands of people discovered that one or two weeks’ pay was gone from their bank accounts, resulting in a negative balance in some cases.
Many of MyPayrollHR’s clients were small businesses without the financial reserves to give their employees a bridge loan while the mess was sorted out.
The next week, two disclosures to the federal Securities and Exchange Commission by parent corporations of area banks gave a hint of the amount of money involved:
Pioneer Bancorp reported Sept. 11 it is facing an exposure of up to $35 million in deposits and loans; Chemung Financial Corporation on Sept. 12 reported a potential exposure of $4.2 million in commercial credit.
Both said in their disclosures that they were investigating the matter further themselves, would try by all means to recover the funds, and are cooperating with authorities investigating the situation. Both said they were in a position to remain well-capitalized through any loss. Chemung said its third-quarter net income would likely be affected.
Pioneer and Chemung both saw their stock prices drop in heavy trading in the days after the SEC filings. On Wednesday, Pioneer’s stock closed down 10.9 percent from a week earlier and Chemung’s closed down 2.2 percent.
Asked for comment Wednesday, both banks said they cannot discuss the matter publicly beyond their SEC filings.
Meanwhile, the president of MyPayrollHR, Michael Mann, remains subject of intense but so far unsuccessful journalistic inquiry, with reporters striking out in their attempts to call him or speak to him, and resorting instead to writing about details such as the size of his dogs and the length of his commute.
The Daily Mail visited his home on the shore of the Great Sacandaga Lake, and for its efforts got a threat from Mann’s wife, Kim, to call 911. It also got to break the news of an FBI search of the home Monday, complete with stalker-style photos and video shot through thick foliage.
But again, substantive details were few — the Daily Mail said it was unclear what the FBI agents had removed from the home, and said it appeared they made no arrests.
A spokeswoman for the FBI’s Albany Field Office said Wednesday she could confirm that FBI personnel were at Mann’s Edinburg house Monday but could not say why they were there.
The FBI has tweeted an email address — [email protected] — and asked affected business owners to send contact information, employee counts, and sum of money lost.
Some insight into the situation was provided last week, when Cachet Financial Services, a California payment processing company, told numerous journalists that it had clawed back the money it placed in workers’ bank accounts on MyPayrollHR’s behalf because it was the victim of massive fraud.
Cachet had worked for MyPayrollHR for 12 years because MyPayrollHR was not authorized to conduct electronic payroll transfers and Cachet is, the Sun Sentinel of Fort Lauderdale reported.
In a mostly automated process, MyPayrollHR collected the weekly payroll money from its clients and put it in an account controlled by Cachet; Cachet would then move the money into individual employees’ accounts.
Cachet’s general counsel told the Sun Sentinel that on Aug. 30, Cachet paid employees as usual without noticing that MyPayrollHR hadn’t put its money in the transfer account — it had placed the money in a Pioneer account instead.
Having discovered this, Cachet sent an electronic command to tens of thousands of employee bank accounts to retrieve what they’d been paid, its counsel told the newspaper. But it coded that command incorrectly, so it repeated the command with the correct code. However, many banks accepted both the incorrect command and the correct followup command, essentially withdrawing two paychecks.
Further aggravating the situation, many banks were slow to recognize the duplicated clawback and many affected employees are unaware of the intricacies of automated direct deposit.
None of which helped people who suddenly couldn’t pay their bills.
When the scope of the problem became clear, a new Facebook group quickly formed — Victims of MyPayrollHr and CachetFS.
In its less than two weeks online, it has grown to over 2,000 members. They’re sharing information and updates, but also plenty of good old fashioned venting.
On MyPayrollHR’s Facebook page, one user assails the company with a vulgar reference to a condom and expresses his desire that they (it? he? she?) spend 20 years in the chair.
In another post, the situation is nothing personal, just business — an Albany payroll company says it will be happy to step in to serve businesses that have been skunked by MyPayrollHR, and offers a promo code for three months of free service.