ALBANY & CLIFTON PARK — Two banks that lost millions in the MyPayroll debacle are suing a third bank that had a more central position in the crisis and sustained even larger losses.
A lawyer representing Berkshire Bank and Chemung Canal trust Company filed separate lawsuits against Pioneer Bank on Tuesday in state Supreme Court, Albany County. The allegations in the two lawsuits are very similar, differing in details such as time frame and dollar figures.
Berkshire is based in Massachusetts and Chemung in Elmira, but both have a presence in the Capital Region. Pioneer is based in Colonie. In the lawsuits, Berkshire says it lost over $15 million and Chemung over $4 million; Pioneer has estimated its exposure in the $35 million range.
The litigation stems from the actions of Michael Mann, owner of the defunct Clifton Park payroll services firm MyPayrollHR and numerous other companies. He is facing federal charges for alleged fraud totaling millions of dollars. When the alleged scheme collapsed, millions of dollars meant for thousands of direct-deposit paychecks went missing, leaving people nationwide without money to pay their bills.
Berkshire and Chemung in their lawsuits allege that Pioneer, as the lead lender to ValueWise, one of Mann’s companies, knew or should have known that something was very wrong with the finances. They say that Pioneer should have disclosed the discrepancies but didn’t.
Pioneer said Wednesday it could not comment on the matter.
The details and allegations laid out by Berkshire and Chemung in the legal papers include:
- Pioneer issued three successively larger revolving lines of credit to ValueWise in the summers of 2017, 2018 and 2019 totaling $96 million. Mann guaranteed each.
- Pioneer approached Berkshire about purchasing a participation interest in the 2017 line of credit, and indicated that ValueWise was a holding company with annual revenue approaching $100 million.
- The claimed success and growth of ValueWise were echoed by Mann in meetings with Pioneer, Berkshire and Chemung, and in audited financial statements Pioneer presented.
- Pioneer, as a depository institution of Mann and his companies as early as 2009, had a unique window to the fraudulent scheme.
- Two months after MyPayroll began to collapse in August 2019, Pioneer disclosed to Berkshire that there had been: 35 overdrafts by the borrower totaling $121.8 million from January to August 2019; indications of suspicious activity; and millions of dollars kited between accounts.
- As a result of Pioneer’s misrepresentations, Berkshire and Chemung each purchased an interest in the lines of credit, resulting in losses of at least $15.6 million and $4.2 million respectively.
- Mann had at least 37 deposit accounts at Pioneer in his name and his various companies’ names.
- Pioneer Bank Vice President David Blessing has been a friend of Mann since graduate school, brought Mann and ValueWise to Pioneer when he joined the bank about 10 years ago, and served as their relationship manager with the bank.
- Blessing reached out to Berkshire in early 2017 about buying into the line of credit, and Berkshire agreed in June 2017.
- Blessing contacted Berkshire and Chemung in December 2018 about an increase in the line of credit. On Aug. 12, 2019, Berkshire entered into an amended agreement with Pioneer on the line of credit and Chemung purchased an interest in it. Also on Aug. 12, there were $8.4 million in overdrafts on the Pioneer accounts of Mann and his company.
- On Aug. 29, the scheme began to collapse as Bank of America froze some of the deposit accounts.
- Mann resigned as ValueWise CEO on Sept. 3; MyPayroll and ValueWise ceased operations Sept. 5; and Mann reportedly confessed Sept. 19 to the FBI that he had created fake businesses with fake receivables and kited millions of dollars between various business and personal accounts.
In the lawsuits, Berkshire cites six causes of action: breach of a 2018 agreement, breach of a 2019 agreement, constructive fraud, fraudulent inducement, fraudulent concealment and negligent misrepresentation. Chemung cites four causes of action: Breach of agreement, fraud, constructive fraud and negligent misrepresentation.
Berkshire seeks at least $15,632,894.18 and Cheming at least $4,225,106.54 in damages to cover losses from the loan agreement, costs, increased administrative burden and lost opportunity.
Albany law firm Nolan Heller Kauffmann represents Berkshire and Chemung; Phillips Lytle also represents Chemung.