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Pioneer Bank says companies suing it failed in their due diligence

Pioneer Bank says companies suing it failed in their due diligence

Berkshire, Chemung banks say Pioneer never warned about fraud that led to $20M loss; Pioneer says they never asked
Pioneer Bank says companies suing it failed in their due diligence
A Pioneer Bank branch in downtown Schenectady.
Photographer: File photo

COLONIE — The CEO of Pioneer Bank on Thursday rebutted allegations in lawsuits filed earlier this week and said two other banks are deflecting attention from their own failings in their attempts to recover losses from a massive fraud scheme.

Pioneer Bank, Berkshire Bank and Chemung Canal Trust Company have said they suffered combined losses of nearly $40 million due to fraudulent activity allegedly committed by Edinburg resident Michael Mann. 

MyPayrollHR, a now-defunct payroll services firm formerly operated by Mann in Clifton Park, drew national attention in early September, when funds for tens of thousands of direct-deposit paychecks were clawed back out of employees’ accounts, leaving people without the money they’d earned. Federal investigators say Mann confessed later in September to a nine-year, $70 million fraud scheme that began to collapse when Bank of America froze some accounts. They subsequently charged him with bank fraud.

One of Mann’s other companies, ValueWise, is at the heart of the lawsuits by Berkshire and Chemung, which allege that Pioneer knew or should have known about the fraud, co-mingling of funds and money-kiting going on, but didn’t tell them about it as Pioneer offered them the opportunity to buy into a line of credit that eventually reached $42 million.

Pioneer CEO Tom Amell on Thursday said he initially was alarmed by the length of the two lawsuits against his bank — 47 and 57 pages.

“When I finished reading the complaint in its entirety, it became apparent to me why it’s so long,” he said. He said it's loaded with detailed and repetitive discussion about what Pioneer knew and when Pioneer knew it.

“What’s striking about it is what they didn’t include in their stories,” Amell said.  That is: Berkshire and Chemung didn't take steps to protect themselves, he said.

Both Berkshire and Chemung are established commercial banks with deep experience in this type of transaction and placed senior banking officers in charge of the transaction, Amell said.

A recurring point in the two banks’ lawsuits is that Pioneer represented ValueWise as a strong company even though it had racked up nearly $122 million worth of overdrafts on Pioneer accounts in 2019 alone. They say Pioneer never told them about the overdrafts or other signs of trouble.

They never asked, Amell said.

“Both those banks had unlimited, unencumbered access to our entire lending team,” he said, as well as to all financial records, as well as to Mann himself. Pioneer will be able to prove this in court, he added.

Attorneys for Berkshire and Chemung claim repeatedly in legal papers filed Tuesday that the overdrafts were a critically important detail to determine the true nature of ValueWise, Amell said; that being the case, he said, the two banks “absolutely” should have asked whether there had been overdrafts.

Asked whether Pioneer had made any attempt to deceive or defraud Berkshire or Chemung — an allegation central to their lawsuits — Amell told The Daily Gazette, “absolutely not.”

In their lawsuits, Berkshire claims $15.6 million in losses and Chemung $4.2 million.

Amell said Pioneer has taken a $2.5 million write-off on deposits and a $16 million write-off on loans. There will be a chance to recover some of that money, and he expects to do so, but until that happens, it must be counted as a loss. The final write-off, plus whatever costs are sustained in the litigation, will constitute Pioneer’s loss from Mann’s actions, Amell said.

As he said Berkshire and Chemung should be looking at their own failings in the fiasco, Amell acknowledged Pioneer had failed as well. He didn’t want to detail those failings but said they are being addressed.

“He really duped a lot of people,” Amell said of Mann. “There’s dozens of people that were taken.”

The matter came to a head for 130-year-old Pioneer Bank shortly after it become a publicly traded company in July. Its stock value plunged 21 percent in September when the extent of the MyPayroll collapse became apparent, but the stock has since regained its losses; it closed at $15.16 in light trading Thursday, near its all-time high.

Berkshire and Chemung saw smaller drops in their stock prices in September after revealing their losses. Their stock values rebounded within two months but have since dropped again. Stock for Chemung, which calls itself the oldest locally-owned community bank in the state, is now near a 52-week low.

Berkshire declined comment for this story, saying the lawsuit spoke for itself. Chemung also declined comment, saying it couldn’t discuss pending litigation. Pioneer took the same position Wednesday when contacted by The Gazette for its first story, but Anell contacted the paper Thursday to discuss the matter.

Pioneer raised $110 million in its initial public offering of stock in July and has more than enough reserves to weather this storm, said Amell. “Our bank has been around since 1889 and we’re absolutely rock-solid,” he added.

Pioneer bank left its longtime home in Troy for a new headquarters in Colonie in 2015 and has embarked on an ambitious strategic plan that included the stock offering; acquisition of Clifton Park human resources/insurance firm Jaeger and Flynn; acquisition of Albany-based Ward Financial Management; and expansion of its wealth-management business. 

The strategic plan remains on track, Amell said, and the bank is planning its 23rd branch.

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