Federal fraud probe leaves local businesses scrambling to pay missing taxes
The collapse of a human resources services company in New York amid a federal fraud investigation is being felt in the suburbs, where a Gurnee-based firm has been forced to close and several small business owners are scrambling to make up thousands of dollars in tax payments that disappeared or are in limbo as a result of the probe.
Gurnee-based Pro/Data Workforce Solutions notified its clients in September that it would stop handling payroll services as of Oct. 1 due to issues relating to a third-party service it was associated with. That firm, Cloud Payroll LLC, based in Clifton Park, New York, is a subsidiary of MyPayrollHR, which closed suddenly in September with almost $35 million in payroll funds from its client businesses frozen by banks that MyPayrollHR had accounts with, according to news reports.
MyPayrollHR's parent company, ValueWise Corp., is the target of a federal fraud investigation. ValueWise CEO Michael Mann 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. Prosecutors claim Mann, 49, fraudulently obtained loans from banks and other financial institutions since 2010 or 2011 by setting up lines of credits using fake companies that had "certain receivables" they did not actually possess.
As a result, Pro/Data and its clients were left without funds to pay their employees' tax obligations. In the letter to clients obtained by the Daily Herald, Pro/Data said taxes for employee paychecks dated between Aug. 28 and Sept. 4 were affected, frozen by CloudPayroll's bank, Pioneer Bank in Albany, New York. The letter recommended clients contact the taxing bodies directly to resolve the issue, and set aside "amounts necessary" to fulfill any tax liabilities during that period.
The company also offered an alternate provider, Texas-based Assure Software, to take over payroll services.
Attempts to reach Pro/Data President Horatio Lopez or a company representative for comment were unsuccessful. While its website is still operational, a recorded message on Pro/Data's phone line tells callers the company has closed and "efforts will be made to try and accommodate transition of accounts to other services. Reports will also be made to clients and creditors in the near future."
A spokesperson for the FBI field office in Albany, New York, would not confirm the number of companies victimized in the ValueWise operation, or if Pro/Data was among the victims, citing the ongoing investigation.
Theresa Carey is one of several suburban business owners looking for answers. The co-owner of Ridgeview Electric in McHenry said her company has $25,000 in missing payroll taxes for two payroll periods, and funds for quarterly payments that have been frozen by Pioneer Bank.
Carey said Pro/Data notified her of the situation Sept. 23, and that she did speak to representatives about it for a week after receiving that notice. Since then, she has contacted the IRS, FBI and Pioneer Bank trying to find answers and a solution.
"Basically, there are a lot of employers out there that are out their tax deposits for at least a week," Carey said. "And in my case, my whole quarter of unemployment taxes is unaccounted for."
She added Pro/Data paid taxes for payroll checks after the Sept. 4 period through another process, but stopped when it closed in October.
Leigh Anderson, who owns Willow Drapery & Upholstery in Glenview, said her small business needs to make up about $3,800 in payroll tax payments for the Aug. 27-to-Sept. 4 period.
Anderson said she also discovered missing tax payments in June, but Pro/Data had worked with her to try to resolve that issue. She said she hasn't been able to get answers from Pro/Data since receiving her letter, and is concerned her liability may be bigger than originally thought.
"What worries me is that there may be more missing payments and we're not aware of it yet," she said.
The FBI and Better Business Bureau in New York have set up websites for MyPayrollHR victims to submit a complaint. The FBI site is /www.fbi.gov/MyPayrollHRVictims and the Better Business Bureau is BBB.org/complaint. Businesses can also contact the New York Attorney General's office at (518) 474-7124 or ag.ny.gov.
Carey and Anderson said they had been using Pro/Data's payroll services since 2006 and had been generally happy with the service and responsiveness to customer concerns. They expressed frustration with the sudden lack of guidance and few -- if any -- answers on how to recoup their lost tax payments.
"What I don't understand is just closing your doors and walking away," Carey said.