B2B Payments

SMBs Struggle Amid MyPayrollHR Fraud Inquiry

SMBs Struggle Amid MyPayrollHR Fraud Inquiry

The closure of New York-based payroll processing firm MyPayrollHR left some 8,000 people and about 400 companies without their paychecks.

Now, small business owners are struggling to make up thousands of dollars in tax payments that vanished or are in limbo, Chicago’s Daily Herald reported Tuesday (Oct. 22).

Pro/Data Workforce Solutions, based in Gurnee, Illinois, notified its clients in September that it would stop handling payroll services as of Oct. 1 because of issues relating to a third-party service it was associated with called Cloud Payroll. That payroll company is a subsidiary of MyPayrollHR. As a result, workers across the country were left with negative bank balances amid the disappearance of up to $35 million.

The ongoing debacle includes allegations against company CEO Michael Mann, who was arrested by the FBI Sept. 23 and faces federal charges of committing $70 million in bank fraud, according to the U.S. attorney’s office for Northern New York.

Mann told law enforcement authorities that MyPayrollHR was legitimate, but he admitted to creating other “companies that had no purpose other than to be used in the fraud,” according to the court filing. He obtained loans and lines of credit by borrowing against “non-existent receivables,” the filing said.

Prosecutors accuse Mann of fraudulently getting bank loans by establishing credit lines for fake companies.

Client letters seen by the Daily Herald showed that taxes for employee paychecks dated between Aug. 28 and Sept. 4 were frozen by Cloud Payroll’s bank, Pioneer Bank.

MyPayrollHR abruptly shuttered on Sept. 5 after Mann’s banks, suspecting him of fraud, froze his accounts.

According to the complaint filed in U.S. District Court Sept. 20, Mann began borrowing “large sums of money” starting around 2010.

Mann did not enter a plea and was released on a $200,000 bond secured by his home and two cars. He faces up to 30 years in prison, a maximum $1 million fine and five years of post-release supervision.

The NYC-based financial technology company DailyPay has created a $25,000 fund to pay for overdraft and/or late fees for MyPayrollHR employees, up to $100 per employee. DailyPay enables employers to provide on-demand access to employee wages.

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