Wednesday, September 18, 2019
“I am calling on the [New York Department of Financial Services] to investigate the sudden and disturbing shutdown of MyPayrollHR in Clifton Park,” Governor Andrew Cuomo stated in a recent tweet. “The company’s reckless actions have left employees across the state with negative bank accounts. They deserve answers.”
In a tweet, the FBI field office in Albany said, “[W]e continue to seek information regarding the alleged activities of MyPayrollHR and its affiliates” and requested that “all impacted business owners” fill out a questionnaire.
MyPayrollHR, a subsidiary of ValueWise Corp. in Clifton Park, a suburb of Albany, provided cloud-based payroll services to about 4,000 companies, according to published reports. That is until earlier this month when clients received an ominous message from the firm alerting them that “due to unforeseen circumstances we are no longer able to process any further payroll transactions,” and advising them to “find alternative methods for processing your payrolls.” Both companies’ websites have since gone offline.
However, the notice came only after employees expecting their bi-weekly pay to be credited to their bank accounts discovered the anticipated amounts instead were debited from their accounts. Worse, many employees had their accounts debited twice – for a month’s worth of wages.
Cachet Financial Services, a Pasadena, Calif., payment processing firm that handled ACH transactions for MyPayrollHR, wound up on the hook for $26 million, as a result, and National Payment Corp, a Tampa, Fla., firm that was handling tax withholdings for MyPayrollHR, was stiffed “to the tune of $9 million,” according to Krebs on Security.
In a statement provided to Krebs, NatPay said MyPayrollHR and its Cloud Payroll service “may have been the victims of fraud committed by their holding company, ValueWise, whose CEO is Michael Mann.” Mann also had been listed as CEO of MyPayrollHR. “NatPay immediately put in place steps to manage the orderly process of recovering funds [and] has more than sufficient insurance to cover actions of attempted or real fraud,” the statement further noted. NatPay said it only learned of the fraud after MyPayrollHR’s bank accounts had been frozen and payment files already had been processed.
The debacle shines an unwanted light on the ACH system, and how adherence to strict rules around ACH payments can lead to disastrous consequences.
Cachet, which had been working with MyPayrollHR for more than a decade, used the ACH to originate biweekly direct deposit transactions to employees of MyPayrollHR clients from a holding account maintained at Cachet. But on Sept. 4, MyPayrollHR had funds earmarked for clients’ payrolls sent instead to Pioneer Savings Bank, which was controlled by MyPayrollHR.
Realizing something was amiss, Cachet submitted a request through the ACH to reverse the transactions, but according to Krebs’ reporting, the request was incorrectly formatted. So Cachet followed up with a properly formatted reversal request.
ACH rules – which are written and administered by NACHA – impose strict formatting requirements on ACH transaction requests, and financial institutions are supposed to reject improperly formatted requests. But an attorney for Cachet told Krebs that a number of financial institutions processed both reversal requests, resulting in many employees seeing a month’s worth of payroll transactions withdrawn from their accounts. The attorney said Cachet ultimately decided to cancel the ACH reversals, leaving it on the hook for millions of dollars. 
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