CLIFTON PARK — The inevitable next shoe dropped in the MyPayrollHR crisis this week, with class-action complaints filed against the Clifton Park payroll company and its financial services firm on behalf of potentially thousands of people who saw millions of dollars go missing from their bank accounts.
Legal papers filed in federal courts in California and Nevada blame a series of actions by MyPayrollHR and Cachet Financial Services for the mess, in which Cachet — by its own admission — clawed back paycheck money it had directly deposited in employees’ bank accounts after realizing MyPayrollHR hadn’t transferred the money to Cachet’s account to cover the deposits.
Along with the clawback, which a regulator said it was not allowed to do, Cachet worsend the situation with computer coding errors that clawed back the paychecks more than once, leaving some people with negative bank balances and no way to pay their bills.
Civil complaints filed Monday in a federal court in Nevada and Thursday in a federal court in California both place the actual missing pay at $26 million, while the Nevada complaint cites $9 million in missing payroll tax withheld, for a total of $35 million.
This is the same sum cited as a potential loss in regulatory documents filed last week by Colonie-based Pioneer Bank, identified in interviews and legal papers a conduit for the missing money.
The plaintiff in the California case is a North Carolina nurse; the plaintiffs in the Nevada case are a Las Vegas IT company, its owner and an employee.
The paperwork in both cases indicates the payroll mess has been highly disruptive for each of the plaintiffs, and indicates there is an entire class of similarly affected people.
Some 4,000 companies that contracted with MyPayrollHR were involved, many of them smaller companies without the capacity to make good on the sudden hit their employees took.
Also named as defendants in the two complaints are Financial Business Group Holdings, Cachet’s parent group; Cloud Payroll and ValueWise, both connected to MyPayrollHR; Michael Mann, owner of MyPayrollHR; and National Payment Corporation, which handled tax withholding under contract.
The attorneys don't mince words in their court filings.
“When MPHR collapsed, it had the potential to send economic ripple effects across the ecosystem of employers and employees for whom it provided payroll services,” lawyers wrote in the California case. “Defendant Cachet Financial Services amplified and exponentially worsened those ripple effects in its reckless, ham-fisted attempts to insulate itself from the fallout.
“Cachet enabled but failed to recognize acts of fraud and/or embezzlement on the part of MPHR. Once Cachet finally recognized that something was amiss, it sought to protect itself at the expense of employees nationwide.
“Cachet wrongfully caused many millions of dollars to be withdrawn from the bank accounts of approximately 250,000 employees nationwide. … Thus, while MPHR initiated the financial crises for employees across the country, Cachet elevated that crises into the stratosphere, financially crippling employees.”
Cachet canceled its clawback, or reversal, of deposits into employees’ accounts, and painted that as magnanimous, but in fact Cachet was not allowed to make such reversals in the first place, the complaint states.
(The National Automated Clearing House Association, which regulates the system for the electronic movement of money and data in the United States, appears to confirm this. It said reversing a valid payment is not allowed under ACH rules and said it is investigating the responsible parties in this payroll crisis, which it called unprecedented and isolated.)
The complaints indicate that many of the affected employees have been made whole on their lost paychecks, but many more are still waiting, two weeks later.
The complaints seek a jury trial, certification of the class of plaintiffs, and award of restitution damages, interest and legal fees.
The affected paychecks appear to be those issued at the end of August, right before Labor Day. The federal complaints are the latest in a rapid succession of developments since the affected employees became aware of the payroll mess, the week after Labor Day:
- A Facebook group formed for victims to share news and vent soon surpassed 2,000 members;
- MyPayrollHR vacated its Route 146 office and dropped out of communication;
- Gov. Andrew Cuomo called for the state Department of Financial Services to investigate the situation;
- The parent corporations of Pioneer and Chemung banks submitted regulatory filings identifying nearly $40 million in potential losses, combined;
- Cachet’s attorney initially gave numerous and detailed interviews to journalists on what happened and why, then became less talkative;
- NACHA affirmed that the clawback was not supposed to have happened, and offered guidance to victims on getting their money back;
- The FBI searched Mann’s home along the Great Sacandaga Lake in the Saratoga County town of Edinburg; and
- The state Senate’s Democratic majority proposed a package of legislation and directives to reduce the chances of a similar situation arising again.