ALBANY — The financial company that magnified the human impact of an alleged payroll fraud scheme is suing the CEO accused of committing the fraud with his Clifton Park firm.
Cachet Financial Services of California filed a civil complaint this week in federal court in Albany seeking tens of millions of dollars from Michael Mann and multiple companies associated with him and/or with MyPayrollHR, the payroll firm at the heart of the matter.
Tens of thousands of people saw direct deposit paychecks clawed back from their bank accounts by Cachet, and in many cases clawed back more than once. Three banks with a presence in the Albany area — Berkshire, Chemung and Pioneer — have notified federal regulators that they are facing potential loss of millions of dollars each in the matter, though each expects to weather any loss.
Mann was arrested on a federal bank fraud charge. The Edinburgh resident appeared in federal court Monday and was released on bond. Federal investigators say Mann made admissions about his actions in an interview Sept. 10, including that the alleged scheme began in 2010 or 2011 and reached a value of about $70 million.
Named as defendants in the lawsuit are Mann, MyPayrollHR and The Mann Entities, which are up to 14 other companies (known and unknown) associated with him.
In the complaint, Cachet’s lawyers say:
- Cachet had an 11-year contractual relationship with the defendants; MyPayroll would collect money from its client companies for their payroll and transfer it to Cachet, which would directly deposit the money in the bank accounts of employees of the client companies. (MyPayrollHR was not able to use the Automated Clearing House system, and therefore could not do the direct deposits itself.)
- At the end of August or the beginning of September, Mann and MyPayrollHR manipulated Cachet's batch files to transfer more than $26 million into accounts owned or controlled by the Mann Entities or Mann at five separate banks.
- When Cachet learned of this, it attempted to claw back the money from those accounts, and found they had been frozen. It then immediately reversed the direct deposits to employees of MyPayrollHR's client companies.
- Cachet later instructed its own bank to cancel those reversals of the direct deposits and allow its own funds to be distributed to the employees' accounts.
This last point is covered only briefly in the legal complaint, and certain details not mentioned there are unfavorable to Cachet. For example, the association that regulates ACH said the reversal Cachet undertook was a violation of ACH rules and it is investigating the actions of Cachet in the "unprecedented" fraud. Also, Cachet's own attorney said in interviews with multiple journalists that there was not just one clawback — the first attempt contained coding errors, so Cachet repeated the command, and many banks followed the order twice. This resulted in some employees losing the equivalent of multiple paychecks and going into negative balance on their bank accounts.
Cachet was named in two class-action lawsuits filed by such employees filed last week.
Cachet says the actions of MyPayroll HR caused it more than $26 million in damages. It alleges breach of contract, fraud, conversion, unjust enrichment, violation of the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and conspiracy to violate RICO.
It requests a jury trial and seeks not less than $26 million in damages; interest and costs; a temporary restraining order, preliminary injunction, permanent injunction and restitution; and tripled damages, as allowed under RICO.