SPECIAL BREAKING NEWS EPISODE: Wendy Slavkin, General Counsel for Cachet Financial Services, joins Blake and David to discuss the MyPayrollHR fraud story. Wendy, who possibly is the last person to have spoken with MyPayrollHR CEO Michael Mann before he and $35 million went missing, gives us the entire story of what happened, when it happened, and how it happened.
- 01:41 – General Counsel Slavkin describes Cachet Financial Services as a sort of third-party vendor for payroll processing companies.
- 05:59 – Every ACH provider has their own patented process for payroll
- 06:45 – How MyPayrollHR’s owner, Michael Mann, did the deed, in technical detail
- 09:03 – Slavkin claims the assorted employee banks are to blame for the whole payment reversal fiasco
- 10:32 – According to Slavkin, banks have 60 days to either accept or reject reversal files
- 11:29 – Cachet eventually decided to return all funds to the affected employees, using their own funds
- 12:10 – Though Cachet covered the payroll, some employees have yet to receive their funds back
- 13:32 – Slavkin notes that employee banks are waiving overdraft and other fees related to this incident
- 14:18 – NACHA’s statement re payroll-deposit reversals | Personnel Today
- 14:38 – Slavkin doesn't agree with NACHA's claim about reversing payroll deposits.
- 16:21 – Lesson learned: ABC - Always Be Cautious ... Before the MyPayrollHR event, Cachet never had controls in place to detect fraudulent activity from the client side. Now, after the fact, they do.
- 18:56 – According to Slavkin, Pioneer Bank is holding at least some of their money "in trust" ... They just have to find a way to get it.
- 23:18 – Timeline of the aftermath – from discovery through contacting FBI and more
- 24:38 – Wall Street Journal reports that Mann is cooperating with the U.S. Attorney and FBI ... | The Wall Street Journal
- 25:02 – Where in the world is Michael Mann? Either nobody knows, or they're not saying
- 26:30 – Blood and turnips - Slavkin was unable to accomplish much of anything when she contacted the FBI for help
- 31:50 – Pioneer Bank – another victim? | Times Union
- 33:30 – Was this a crime of desperation, or a crime of greed?
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Connect with Our Guest, Wendy Slavkin, General Counsel for Cachet Financial Services
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Wendy Slavkin: First of all, the file got manipulated by MyPayrollHR, prior to uploading into our system. They were a client of ours for 12 years. Michael Mann purchased it, I think, about six years ago; had a great relationship with them, never had any problems. So, there was not an alarm when he manipulated that account number. This was something that we just could not foresee. This was our client.
David Leary: So, Blake, [00:00:30] I have a special guest interview for us right now. We have Wendy Slavkin. She is the attorney for Cachet. They are the ACH money movement company that was involved with the MyPayrollHR fiasco/mess. I don't know ... Wendy, what would you say is the best way to describe this, at this point?
Wendy Slavkin: First of all, I'm general counsel for Cachet. We have many attorneys, but I'm the general counsel. I've kind of been overseeing all of this. How would I describe it? I would describe [00:01:00] it as - from our end - a $26 million fraud.
David Leary: So, I imagine your last 21 days or 20 days have been a little insane. Did you wanna walk Blake and I through that, and then, we'll ask any clarifying questions along the way maybe?
Wendy Slavkin: Can I give you a little background about my client-
David Leary: Absolutely.
Wendy Slavkin: -and how they kind of played into this whole disaster? Cachet Financial Services is a company located in Pasadena, California; been around for 22 years. One of the things we do is we get involved in the movement [00:01:30] of money through the ACH - automated clearing house - system. Our clients are hundreds of payroll processors all across the country, much like this particular one we're dealing with, MyPayrollHR.
Typically, what we do is we enter into an agreement. We call it a re-marketer agreement, but it's kind of like a third-party vendor agreement with different payroll processing companies. These payroll processing companies, back in the old days, or the 1990s, as I like to call it, they [00:02:00] printed hard checks, paper checks that they would typically mail or messenger-deliver to different employers for their payroll. Nowadays, a lot of employers are going the way of direct deposits, meaning they deposit the money directly into the employee's account, and we're doing away with paper checks.
These payroll processors, for the most part, are unable to do the direct deposits themselves. They're just not set up. They don't have the proper licensing, [00:02:30] and facilities, and bank relationships. They'll enter into an agreement with somebody like us, like Cachet Financial Services, to do the direct deposit part of it. We're, in a sense, like a third-party vendor for these payroll processors.
David Leary: Got it. So, me, as a payroll processor, I have my expertise, which is calculating paychecks.
Wendy Slavkin: Right.
David Leary: Having relationships with small businesses, but you do all the money movement and the bank relationships on the backend side.
Wendy Slavkin: Exactly. What most people don't understand is the ACH process [00:03:00] is a two-step process. The first step is the collection step. Typically what'll happen is employers will go into whoever their ... In this case, MyPayrollHR system. They'll upload all the information for the payroll for their various employees. They upload that into MyPayrollHR system. MyPayrollHR, in turn, will upload a file into our system, Cachet's system, that may contain various [00:03:30] and many different employers with their employee information.
The collection part of the first step is that the file that MyPayrollHR sends to us will say, "Take money out of A, B, C, D, E, F, G employer; take money out of their accounts to be used for payroll." That's the first step, the collection step. When it goes the way it's supposed to go, we will then- Cachet ... It's all done electronically. It's [00:04:00] not like there's somebody sitting in front of the computer watching all these numbers go by. It's all done electronically, through our patented system. Our system will then take the money out of the employers' accounts. The way it's supposed to go is we move it into what we call our settlement account or a holding account if you like. All the employers' money would be moved into that one account. That's if it goes the way it's supposed to go.
The second step to this ACH process is disbursement. That file [00:04:30] that MyPayrollHR uploaded into our system would say, "Okay, now you have all this employee money. Direct the money to these various employees across the country." That would be the disbursement. That's how the employees would get their direct deposit. That's how it's supposed to work. Are you with me so far?
Blake Oliver: Help me understand. I've heard about a file. What sort of file are we talking about? What is it?
Wendy Slavkin: It's a huge computer/electronic file. We sometimes call it a batch file, but it's got all [00:05:00] kinds of information in it that MyPayrollHR, or any payroll processor, would upload into our system that contains the payroll for that particular payroll processor's employers. Then, the second part, again, the disbursement, would be all that money is now in our holding- our settlement account. What we're gonna do with that is we're gonna follow the second part of that file that was uploaded and put it into all these employee accounts. That's how it's supposed to work. What happened here-
David Leary: These files ... If [00:05:30] I'm using Cachet as my ACH service provider today, and next year, I get a new contract with a new company, do I just use the same file, or do I have to create new files to their standards?
Wendy Slavkin: No, you would have to create new files to their standards. We provide the payroll processor with specifications; call 'em specs. Those specifications say, "This is how it has to look. This is our settlement account where the money has to go." Every ACH provider [00:06:00] has their own patented system. If you recall, there was another one of our competitors was involved in this mess, NatPay. NatPay has their own patented proprietary system, and they were able to do the same thing to NatPay's system that they did to our system, which I'm just about to explain to you.
David Leary: When we say NatPay, NatPay was handling the [cross talk] tax deposit from MyPayrollHR.
Wendy Slavkin: -from MyPayrollHR's employers, right; their quarterly tax payments or whatever. [00:06:30]
David Leary: Okay.
Wendy Slavkin: We do that, too. Cachet does that, too, but we weren't contracted- we didn't have a contract with MyPayrollHR to do that part of it. NatPay had that contract.
David Leary: I understand.
Wendy Slavkin: Although we do that for other employers- other payroll processors, I should say. What happened in this case is when ... Before MyPayrollHR uploaded the file into our system, remember I talked about the specifications that are required for the payroll processor to upload the file? [00:07:00] They went in and manipulated the account numbers so that instead of the money going into our settlement account, it went into- it was diverted to a different account at MyPayrollHR's bank, which is Pioneer Bank, and that was controlled by MyPayrollHR.
Our system went and gathered all the money from the employers; instead of it being moved into our settlement account, it was diverted into an account controlled by MyPayrollHR at Pioneer Bank. That's where the glitch happened. [00:07:30] When our system went to find the money to pay to these employees, it saw there was no money in our settlement account. it kind of, I guess, follows the money. I don't know exactly how it works, but the program is set up ... It found the money in this account at Pioneer Bank, and it went to grab that money to pay all these employees across the country, and that account came back as frozen.
David Leary: But, in the meantime, Cachet is starting to put money into [00:08:00] employees' bank accounts all over the country.
Wendy Slavkin: Right. It kinda happens a little bit simultaneously. This was two weeks ago, actually, today. Cachet got in the office and found out this bank account came up frozen, and we were $26 million in the hole.
Blake Oliver: Negative $26 million balance in that settlement account.
Wendy Slavkin: Right.
Blake Oliver: Okay.
Wendy Slavkin: Because we, Cachet, guarantee these ACH transactions, our bank requires us to do that. When [00:08:30] that bank account came back as frozen, it went ahead and advanced the money into all these employees' accounts across the country, but it was Cachet's money it was using to fund that payroll. What happened is because it was our money, and we have no obligation to make payroll for these 400-plus employers, 1,000 employers across the country, we went ahead and we initiated what's called a reversal file as part of our fraud protocol to get the money back from the employees, [00:09:00] because it was our money; it wasn't employer money.
The first reversal file that was created was done improperly. It didn't comply with the protocol necessary to do a reversal file. We assumed that the banks, the receiving banks, which would be the employee banks, would automatically reject that reversal file because it was improperly formatted. The banks should have automatically rejected that first reversal file. Because we assumed the banks would do that, we [00:09:30] created a second reversal file. So, what happened is, then, a week ago Monday, that's when all hell broke loose, so to speak. All these employees' accounts were not only being debited for the direct deposit they received from us, but a second time, as well. If there was $500 dollars put in their account for that direct payroll, they were getting debited $1,000.
When we found out what was happening, we contacted our bank and had our bank reach out to all these receiving [00:10:00] banks, more than 100 banks - receiving banks being the employee banks - and personally instruct them to reject both reversal files and put the money back in the employee accounts.
David Leary: This is all electronic, and it's happening very fast, so by the time you realize these things ... You're manually contacting, I'm assuming, by telephone and email, 100 banks.
Wendy Slavkin: Our bank reached out to all these banks by telephone, fax, e-mail, however they could, and instructed them to reject both [00:10:30] reversal files. Now, something that's little known in the banking industry is when a bank receives a reversal file, they actually have 60 days to accept or reject it. So, in other words, when an employee's bank receives a reversal file, they may conditionally accept it, but that doesn't mean they're sending the money back to us. They never sent ... No bank has yet sent money back to us, to Cachet.
They conditionally [00:11:00] accepted ... They, in a sense, put a hold on that money. When they got the second reversal file, they put a hold on another amount of money. But it doesn't mean that they sent the money to us. They just put a hold on it. By law, they have 60 days to decide, are they going to accept the reversal or reject it? Even though they conditionally accepted these, it doesn't mean that, ultimately, it would have been accepted. The first one, ultimately, would have definitely been rejected.
Why [00:11:30] we had our bank reach out, a week ago Monday, was to make sure that both reversal files were rejected, and the employees would get their money back. We saw the extreme heartache this was causing on all these employees, so we made the decision - we're just gonna let them keep their money, even though it's our money. So, in effect, we funded the payroll, and paid 8,200-and-some-odd employees across the country; we would try to get the money back from Pioneer Bank and other sources. [00:12:00]
Blake Oliver: So, it's September 18th, right now. Have all the employees been made whole, at this point? Do they all have their payroll and those reversals cancelled?
Wendy Slavkin: From what I've been told, not every employee. The majority of employees have been made whole. The ones that haven't been made whole; I've gotten calls from some of them. My client's gotten calls. We've instructed them to talk to their bank to see what's the delay in getting the money back. If their bank doesn't [00:12:30] cooperate, I've been referring them to an email of a person on our end that has been designated to handle all these and to try to interface with the banks to get that money back into their account as soon as possible.
I know the majority have been made whole. There's still some that haven't. If they haven't been made whole, it's really their bank that's holding up the process. Understand, a lot of times, these smaller banks, they're gonna hold onto the money as long as they can. They [00:13:00] earn interest on that money. They're sometimes a little more reluctant to release the money than some of the major banks are. But I've been told that even, in some cases, B of A and Chase Bank, in isolated instances, have been reluctant to release the money. Hopefully they're in the process of doing so or will be doing so. Our goal is to make every employee whole, and that's what we've been working on to accomplish.
Blake Oliver: What about the overdraft fees, the bank fees? They could add [00:13:30] up to hundreds of dollars for some of these employees.
Wendy Slavkin: Right. What we understand is that the banks are waiving those fees. That's what I've been told.
Blake Oliver: There must be hundreds of banks involved. Are all of the banks?
Wendy Slavkin: From what I've been told, they are waiving those fees, and we're doing whatever we can to make sure they waive those fees.
Blake Oliver: I was reading an article on Personnel Today that talks a little bit about the NACHA rules. This is the way that all the banks move around money with ACH-
Wendy Slavkin: The National Clearinghouse Association-
Blake Oliver: -and the federal government administers [00:14:00] this thing. That's what you guys are licensed with, or you have an account with them? Is that how it works?
Wendy Slavkin: They're governed by the NACHA rules, yes.
Blake Oliver: Gotcha.
Wendy Slavkin: It's not that we do. We have a relationship with our bank, and our bank is governed by those rules.
Blake Oliver: So, in this article, there's a statement from NACHA, which says, "Reversing a valid payroll deposit is not permitted under the NACHA rules that govern the ACH network. NACHA is investigating the responsible parties and is working with financial institutions to undo or remedy any invalid transactions." [00:14:30]
Wendy Slavkin: Yeah, I saw that article.
Blake Oliver: So, is that the reason why Cachet reversed its [cross talk]
Wendy Slavkin: No, no, that's not.
Blake Oliver: Okay ...
Wendy Slavkin: I don't necessarily agree with that. There's actually a recent case that came down that disputed that statement. I don't have a cite for you, but I'm in the process of finding out about it. We decided to reverse it because we saw the hardship it was causing to the employees, basically. I was getting calls, and my client was getting calls. People couldn't [00:15:00] pay their rent. They couldn't provide for their children. That's why we decided to have the banks reject those reversals. NACHA did not get involved in helping us. From what I understand, and this is my own understanding - there may be something more to this - but it was our bank that facilitated in getting these reversals rejected by the banks.
Blake Oliver: So, let's go back to this file and the process or the workflow by which these ACH transactions [00:15:30] are initiated. When the file was manipulated and uploaded, did any alarm bells go off in the Cachet offices? It seems like this just got executed, and then only after this started to happen was somebody alerted. What are the controls in place to make sure that this doesn't happen?
Wendy Slavkin: That's a great question. First of all, the file got manipulated by MyPayrollHR, prior to uploading into our system-
David Leary: Just because we haven't talked about this yet, MyPayrollHR has [00:16:00] been a client of yours for how many years?
Wendy Slavkin: Well, they were client of ours for 12 years. Michael Mann, the guy who is the owner, purchased it, I think, about six years ago; had a great relationship with him; never had any problems. Just like we've never had this happen over the last 22 years. There was not an alarm, when he manipulated that account number. Trust me, there's been an update to our system. [00:16:30] There is now an alarm. I have to say, Cachet is great about ... We update our security protocols all the time, Most of our clients have had their systems hacked, and cyber terrorism, and the Russians, and this and that. We continuously update our security protocols.
This was something that we just could not foresee. This was our client. At the beginning of the conversation, [00:17:00] if you recall, I said we have our own patented system, and we didn't catch it. NatPay has a completely different system, their own patented system, and they didn't catch it. It was something that was very extraordinary and out of anything anybody could foresee. History is our great lesson about protecting us in the future. So, now we have something in place that would prohibit a client from ever doing that again. It was kind of the farthest thing from [00:17:30] our minds, because usually it's not the payroll processor, it's a third party who hacks into a payroll processor system. We've been parties to those kind of situations, but never this, where our own client decided that they were gonna manipulate the system.
Going forward, it will never happen again; I'll tell you that. History, in this case, has been our great teacher, but there was nothing in effect that would have alerted us to it, until what happened, once they got to work a week ago, Wednesday- or two weeks [00:18:00] ago today, I guess, and we found out that we were $26 million deficit. Then we started looking at the system. You can print out the reports, and we were able to find out that they had manipulated the account numbers before they uploaded to our system to divert the money to Michael Mann's company's account at Pioneer Bank.
Blake Oliver: Yeah, let's talk about that. The money should be all sitting in an account at Pioneer Bank, [00:18:30] right?
Wendy Slavkin: Well, we hope so. From your mouth to God's ears, as we say. Pioneer Bank has not been very ... Of course, we immediately called Pioneer Bank, and they won't give out any information. It would be like me calling your bank and asking for information about your account. Unless you're a named account holder, the banks legally cannot give me any information.
David Leary: We see that with accountants and bookkeepers. They have to ... The owner of the business has to give the accountant or bookkeeper access.
Wendy Slavkin: Exactly, and I'll go back to that in a second. Pioneer [00:19:00] Bank filed, with the feds, a form called an A8, I believe, and it disclosed that they had $19 million dollars in that account that they had frozen. We look at it as that $19 million dollars is, in a sense, trust money, because it was money that came from an employer for the purpose of paying payroll that Cachet ended up paying. So, that $19 million belongs to us.
Of course, we are in [00:19:30] the process of filing a lawsuit against MyPayrollHR and Michael Mann, and subpoena those bank records, and trying to get that money back to us. Now, where the other $7 million is, I don't know yet. We don't know what other accounts Michael Mann has there; what kind of assets we have there. What I heard was that Pioneer Bank loaned Michael Mann a great deal of money, like over $30 million dollars, and they suspected something fishy going on, so they just were trying to put a hold on as much money [00:20:00] as they could. But again, that money in that particular account does not belong to Pioneer Bank. It belongs to Cachet.
So, interestingly, and I said to you I'd get back to you on this, when we got to work that ... It was interesting that Michael ... This was very well-planned because the payroll was right before the three-day holiday if you recall. The chances of us finding out about it was gonna be delayed a day, because banks were closed that Monday for Labor Day. When we found out Wednesday, there was a slight delay [00:20:30] because of the bank closure. I think Michael Mann probably planned on that happening. We immediately called Pioneer ... Excuse me, we did call ... Pioneer Bank wouldn't give us any information.
We called MyPayrollHR and tried to speak with Michael Mann. He wasn't available. I don't know who my client spoke with over there, but they couldn't give us any information. Michael Mann finally called us back that Wednesday. That'd be two weeks ago, about 2:30 in the afternoon. He said, "Oh, it's all gonna be ..." He reassured [00:21:00] us everything was gonna be fine. Our request was that he conference call us and his bank with him to give the bank permission to talk to us and tell us what had happened [cross talk]
Blake Oliver: -sorry, can we go back to ... I wanna make sure this is really clear in my head because I'm confused about the timeline.
David Leary: So, 2:30, right, Pacific, for you, Wendy?
Wendy Slavkin: Yes.
David Leary: Which is East Coast, 5:30, which means-
Wendy Slavkin: After the bank had closed-
David Leary: After business hours. Okay.
Wendy Slavkin: Exactly. Don't [00:21:30] you think it's interesting that he called us after the bank closed?
Blake Oliver: I'm sorry, what set this off on Wednesday? Take me back to the beginning.
Wendy Slavkin: My clients came to work Wednesday morning, and they started getting notices, computer printouts, that that- what had happened; that the account was frozen at Pioneer Bank-
Blake Oliver: Oh, gotcha.
Wendy Slavkin: -and the system had looked to our accounts and us, personally, to underwrite that payroll.
Blake Oliver: So, the file got uploaded on the 3rd, in [00:22:00] the evening. Is that how it happened?
Wendy Slavkin: What day was it? it got uploaded before the three-day holiday? What was the [cross talk]
Blake Oliver: Oh, it was before the 3rd, okay.
Wendy Slavkin: Yeah, that's what my point was, was that three-day holiday, the Labor Day holiday-.
Blake Oliver: Labor Day was the 2nd of September.
Wendy Slavkin: Right. So, they must have uploaded at the end of the month, which would have been the 30th, I'm assuming; that Friday. Tuesday was a holiday. That was the 2nd. I mean, Monday was a holiday; the 2nd. We didn't find out til [00:22:30] the morning of the 4th, because there's usually like a two-day delay. Whereas, before we might have found out on the 2nd or the- but we didn't, because a bank was closed, or maybe the 3rd. There was a further delay to the [cross talk]
Blake Oliver: Got it, because it took two days for the money to go from the employer accounts into-
Wendy Slavkin: Well, I don't know if it took two days for the money to go to the employer's accounts. It took two days for us to be notified that the account where the employer's money was, was frozen-
Blake Oliver: Yeah, okay-
David Leary: -because when banks are closed, banks are closed, right. They just don't operate [cross talk] [00:23:00]
Wendy Slavkin: -we might have gotten notice late Tuesday night, when nobody was there. I don't know. But it was Wednesday morning that everything fell apart.
Blake Oliver: So, Wednesday morning, they come into the office. They realize what has happened. Now, take me through on the day on Wednesday.
Wendy Slavkin: We tried to contact the client, MyPayrollHR. I wasn't part of this conversation. They spoke with a couple people there who didn't know what was going on. Left a message from Michael [00:23:30] Mann, who is the owner, is the sole shareholder, to call us back. We also called Pioneer Bank, who wouldn't release any information to us. Michael Mann finally called us back that afternoon, the 4th, at about 2:30 our time, Western time. It's interesting he called us back after the banks closed on the East Coast ...
We had a couple questions. One, is everything gonna be okay? He assured us it would [00:24:00] be. Then, our main request was that, "We want you to get on the phone with your banker and us in a conference call so we can talk to the bank to find out exactly what's going on and why that money is being frozen." His response to us, and he was calling, I think, from a cell phone, and I was on the phone along with representatives from Cachet ... His response was, "I'll call you back in 10 or 15 minutes." Well, needless to say, he never called back, and we could never reach him again despite attempts to reach him. [00:24:30]
Blake Oliver: Since that call, you have not been able to reach him, two weeks later.
Wendy Slavkin: We haven't spoken with him. I just read an article. Not sure if it maybe was The Wall Street Journal that said that Michael Mann has an attorney, and he's working with the U.S. ... Because the U.S. attorneys opened a case out in Albany, New York, along with the FBI back there; that he's working with the U.S. attorney, cooperating with him. I don't know what that [cross talk]
David Leary: I saw that article, as well, this morning. Between this morning and your conversation with him, he pretty much fell [00:25:00] off the face of the earth. Nobody could contact him. Nobody knew where he was.
Wendy Slavkin: Right. Exactly. My conversation with him was Wednesday. By Thursday, if you recall, they posted something on their website, the company had closed its doors. Then, Thursday afternoon, I heard, as part of the rumor mill, that he had fled the country. Then Friday morning, I had heard that he had been arrested. So, of course, I reached out to my FBI contact, and the FBI ... Their [00:25:30] response is, "We can neither confirm nor deny." He wouldn't tell me anything. You know, the FBI, they wanted a lot of information from us, but they were not- so far, have not been very forthcoming on what they know.
Blake Oliver: I feel like if he was in custody, that would be- we'd know about it, at this point.
Wendy Slavkin: Right. That's what we had heard, in the payroll industry rumor mill ,or whatever. Then I had spoken with a reporter that morning from Albany, and I don't remember who; this was Friday morning, and said, "I [00:26:00] heard he was arrested. Do you know if that's the case?" because she was back there, and she goes, "I can tell you; he hasn't been." I said, "Well, how do you know that?" She said, "Because I know people who know him." I said, "Really? Can I have their names?" She said no.
Then I figured, okay, he wasn't arrested yet. Then, when I heard that, I don't know, was it a day or two ago, that his house had been raided, but they didn't arrest him ... So, I don't know if he was there. It mentioned his wife being there. I [00:26:30] don't know. The FBI plays it very close to the vest. We, by the way, when that Wednesday, two weeks ago, when this all happened, I reached out to the FBI office here in Westwood. You know where that is - Wilshire and Veteran - because I had this image that I told them what had happened, and they would immediately go to my client's offices like the white knights and want to help us. That's not how it works. Apparently, they get a lot of crank calls.
They said to me, "The only thing we can do is for you to [00:27:00] arrange for a walk-in interview on Friday [mind you, this was Wednesday] and bring all the documents that we have." I said, "But you don't understand. This guy could leave the country. Aren't you gonna do something?" "Well, we don't work that way." They had to do a background check on me, on my client's representative. We ended up meeting with them Wednesday, met with a woman ... Basically, it was I thought it was gonna ... They call it interview room, but basically it's like a plexiglass [00:27:30] window, like you're at a bank, and you're talking to her through that. She just happened to be the duty agent on call. I think she understood maybe five percent of what I was trying to explain to her, because it's a very complicated process, and unless you're involved in financial crimes, you really don't understand it.
By that time, two other FBI agents had reached out to me - one from Boston and one from Pennsylvania - that apparently employers had reached out to them. So, it lent a little bit of credibility [00:28:00] to what I was telling her. My message sure was, "I'm not telling you how to do your job, but I know the FBI has resources and is able to have things accomplished that I cannot. If they do anything before the banks close today, Friday, please have somebody reach out to Pioneer Bank and tell them not to release any of that money."
Whether they did that or not, I don't know. I know that I sent a cease and desist letter to Pioneer [00:28:30] Bank, telling them not to release any of that money and have since also sent a similar letter to Bank of America, because we found that Michael Mann has some accounts at Bank of America under different names that we thought might be involved in this fraud.
Blake Oliver: There's so much going on here. It's incredible. I feel like this like a true crime financial ... A Financial True Crime episode [00:29:00] right here on our show.
David Leary: Is there a little bit more background on Michael Mann.
Blake Oliver: Yeah, who is this guy?
David Leary: He purchased MyPayrollHR, but I tried to Google for him. I went deep-diving, deep-diving, 10, 30, 40, 50 pages in. It's almost like he doesn't exist. But he has another company, apparently, that owns MyPayrollHR-
Wendy Slavkin: From what I know, that company is called ValueWise. Is that the name you came up with?
David Leary: Yes. Yes.
Wendy Slavkin: ValueWise, I was told, and [00:29:30] our other attorneys who are working on this, I think it's like a parent company. He also- they also go by the name of Cloud Payroll. We've since found out a bunch of other entities that he has something to do with. There's a senior home care company, a bunch of other companies that he ... I don't know if they're shell companies. I don't know if they're valid companies. I've gotten calls from attorneys outside of California and inside California that represent people that factored [00:30:00] some of Michael Mann's accounts with these other entities. I don't really know the extent of it.
I thought the FBI, when the story broke, about the FBI raiding his house, that nobody has any pictures of him. They couldn't find any pictures of him. I don't know really anything about him. I know that for six years he's ran this company, and everything has worked like clockwork. But apparently, what we've learned after the fact is that ... The rumors started circulating that [00:30:30] he had some big financial problems. All these other entities have come up that he is associated with. I don't know how it all plays into this or not. I know that I really don't want to complicate the story more, but what I understand is that he's been, I think, moving money to different places that we don't know about.
Blake Oliver: Let's talk about Pioneer Bank and their involvement in all of this. You mentioned that you weren't able to get a hold of them back when [00:31:00] this initial-
Wendy Slavkin: It's not that we couldn't get a hold of them. They just wouldn't give us any information.
Blake Oliver: Since the 5th, the 6th, when this all happened, have you been able to talk to Pioneer Bank? Have they given you any information? Are they being helpful?
Wendy Slavkin: No, they're not helpful to us. I'm assuming they're cooperating with the FBI and the U.S. Attorney's office, and I think some of the reports even said that when [00:31:30] they filed this A8 form, they noticed some sort of fraudulent occurrences in the account. They're claiming that's why they put a freeze on it. Whenever there's some sort of fraudulent activity at a bank, they have to disclose it, and they do that through, I think it's called an A8 form or an 8A form. That's where we found out that they're sitting on $19 million.
Blake Oliver: In this SEC filing, Pioneer Bank reported that they originated a loan to MyPayrollHR for $36 million dollars, and $16 million [00:32:00] of that had already been provided. Going beyond the-.
Wendy Slavkin: What did you just say? I didn't understand what you just said.
Blake Oliver: They originated a $36 million loan and $16 million had been provided-
Wendy Slavkin: Had been provided?
Blake Oliver: I don't know what 'provided' means exactly, but I'm guessing that means they had advanced the $16 million out of a potential $36 million. I'm just trying to figure out what is going through Michael Mann's head? Like, what is the point of all this? [00:32:30] Why did he do it? We don't know where he is. Nobody knows seems to know - or maybe the FBI knows, but they're not telling us - but nobody knows where Michael Mann is.
Wendy Slavkin: He could have been at his house when they raided it. We don't know that.
Blake Oliver: Yeah, I feel like they would have arrested him, right?
David Leary: The interesting thing in this conversation ... We're in this industry. It's very interesting to us, but CBS's Morning Show, the host of that show was asking that question, "Where is Michael Mann?" [cross talk] They were asking that this morning.
Wendy Slavkin: -yeah, I spoke with them, as well. Oh, they were asking that this morning? Yeah, I [00:33:00] don't know where he is. I don't know if the FBI knows. I know that article in The Wall Street Journal said that Michael Mann was cooperating with the U.S. Attorney, which would indicate to me that the U.S Attorney or the FBI knows where he is, but we don't.
Blake Oliver: Just to clear things up, this is not the same Michael Mann who directed The Last of the Mohicans.
Wendy Slavkin: No, it is not.
Blake Oliver: That also confuses the Google searches.
Wendy Slavkin: Yeah, no. This guy has nothing to do with the entertainment world.
Blake Oliver: Now, I'm just talking out loud. Why would Michael Mann do this? [00:33:30]
Wendy Slavkin: Well, he obviously ... It seems to me, why anybody does this kind of stuff is because they need money. He saw a way to grab some cash or maybe to pay off his obligation at Pioneer Bank. I don't know. I can only guess. I think he obviously had some financial difficulties and was trying to, however he could, get money, and he thought this was a good idea.
Blake Oliver: It's interesting. Maybe he was trying to get the money out of Pioneer Bank, and they froze the account, which would mean [00:34:00] that he didn't get it. But then there's the question of what happened to the $16 million that Pioneer Bank loaned him. Maybe that's gone, and Pioneer Bank will end up being on the hook.
Wendy Slavkin: Right, and there should be $26 million in that account; which Pioneer Bank declared in writing, there was only $19 million in that account. So, we don't know where the money went.
Blake Oliver: Maybe he was able to - and I'm just speculating here - maybe he was able to get some of it out before they froze the account.
Wendy Slavkin: Perhaps/ Your guess is as good as mine.
David Leary: The ripple effect of the impact of this crime. It's Pioneer [00:34:30] Bank, possibly. It's Cachet. It's the bank in Florida-
Blake Oliver: It's also legislation.
David Leary: -thousands of employees. Thousands of employees. You have possible legislation coming down the pipe. Even the MyPayrollHR employees were affected. I saw that email where they told them to meet in a liquor store parking lot to pick up their personal belongings. The ripple effects of who this has impacted is really, really far-reaching.
Blake Oliver: David, you found that story about how the New York state legislature is now [00:35:00] considering legislation to more- well, to regulate payroll companies like this, payroll services like this, which have never been regulated [cross talk]
Wendy Slavkin: Well, the payroll services is a pretty unregulated business. Again, we've never had a problem like this with a payroll provider, ever. 22 years, this has never happened. And I assume it's not happened to our competitors, like NatPay, or they would have protected themselves against it. You know what I'm saying? The whole thing [00:35:30] is very enlightening. It's just horrible. Like I said, the employees will all be made whole. If they haven't already, they will be. Like the FBI said to me, "We realize that you're the victim here, once the employees are made whole ..." but at a tremendous cost to both the employees, the employers, and to us.
Blake Oliver: David, I don't have any more questions.
David Leary: Wendy, I feel like you filled in [00:36:00] a lot of gaps that we were [cross talk]
Wendy Slavkin: I hope so.
David Leary: -because we were trying to piece along this timeline, ourselves, based on ... Every day, there was two new pieces of news [cross talk] it's nice to hear the whole story. I think our listeners will really appreciate hearing this whole entire story.
Wendy Slavkin: Yeah, it's important to walk through the process. People don't understand how the ACH system works. A lot of people think the money automatically goes from the employer account to the employee account. It doesn't work that way. It's a little more complicated than that. Again, Cachet's, [00:36:30] personally, for me ... I've spoken with a lot of these employees directly, and the stories are- they're just awful. One woman's child had an asthma attack and she couldn't get medication ... My heart goes out to them. This man has created so much havoc. He does belong in jail. I don't know what's gonna happen, but that's where I think he should be. But I appreciate your time, and thanks for having me on.
David Leary: Maybe we'll have you on again-
Blake Oliver: When we finally figure all this [00:37:00] stuff out. As always, you can connect with me on LinkedIn. I'm on Twitter: @BlakeTOliver. And you, David?
David Leary: I'm @DavidLeary.
Blake Oliver: We will continue on covering the MyPayrollHR fraud- payroll fraud story for you. Thank you, Wendy, again for your time. Appreciate it.
Wendy Slavkin: My pleasure. You're welcome.