A large insurance company that sold a policy against crime losses to a Clifton Park payroll-processing company that abruptly closed in September is suing the company for fraud, and seeking to have the policies voided.
MyPayRollHR and its president and CEO, Michael Mann of Edinburg, defrauded Ohio Casualty Insurance by concealing alleged theft by Mann from the company -- theft that amounted to tens of millions of dollars, according to the lawsuit and a federal criminal complaint about Mann.
The lawsuit was filed this week in U.S. District Court in Albany by the Ohio Casualty, which sold insurance against losses due to crime committed by its employees to MyPayRollHR starting in 2013 and continuing until this year. Among the matters the policy was supposed to cover was "employee dishonesty" and losses to clients related to employee dishonesty.
The lawsuit contends that the policy should be voided because in buying the insurance, Mann did not disclose his ongoing thefts from the company.
"The claims from MyPayRoll's customers were the first information Ohio Casualty received about the possibility of fraud and misrepresentations in connection with MyPayRoll's application for Policy and renewals thereof," the lawsuit states.
The company, which processed payroll for companies across the country, abruptly closed its office in Clifton Park on Sept. 5. During August, according to a criminal complaint about Mann, about $26 million in MyPayRollHR client funds "seemingly disappeared," the lawsuit said.
Tens of thousands of people saw direct deposit paychecks clawed back from their bank accounts by Cachet Financial Services of California, which actually handled the movement of payroll funds. In some cases, paychecks were clawed back twice, because Cachet employees believed they had made a computer coding error the first time.
Mann was arrested on a federal bank fraud charge on Sept. 20. Federal investigators say Mann made admissions about his actions in an interview on Sept. 10, including that the alleged scheme began in 2010 or 2011 and reached a value of about $70 million.
Cachet has filed its own federal lawsuit against MyPayRollHR and Mann.
In the new lawsuit, Ohio Casualty argues that it shouldn't be responsible for covering any losses because the policies are voided due to alleged fraud by Mann. Since MyPayRoll's collapse, approximately 60 claims have been submitted to Ohio Casualty by MyPayRoll customers, making claims for more than $1 million, according to the lawsuit.
In applying for coverage each year, the company asserts that MyPayRoll swore that it was unaware of any fraud or dishonesty within the company -- and that itself was fraud, since Mann is accused of having taken money since about 2012.
"It was not until the filing of the criminal complaint about Mann on Sept. 20, 2019, that it became clear to Ohio Casualty that grounds existed to properly rescind the policy and all renewals thereof," the lawsuit states.
A provision in the policy said it is voided if the policyholder at any time "intentionally conceals or misrepresents a material fact," according to the lawsuit.