ALBANY, N.Y. — A Saratoga County businessman charged with a complex scheme to defraud small businesses, large businesses, and several financial institutions out of millions of dollars pleaded guilty last week to the years-long fraud.
In an Aug. 12 appearance in U.S. District Court in Albany Michael T. Mann, 50, pleaded guilty to orchestrating a years-long fraud that caused more than $100 million in losses to banks, financing companies, and other businesses. The appearance took place before Sr. U.S. District Judge Lawrence Kahn with Mann’s attorney Michael Koenig in attendance.
Mann operated ValueWise Corporation, an umbrella business for several subsidiary companies including MyPayrollHR. The latter business offered its services to small businesses across the country to alleviate the necessity of their having to do their own bookkeeping.
MyPayrollHR was based in Clifton Park and closed abruptly last September triggering outrage from the businesses and their employees and interest from the FBI, the U.S. Justice Department, and later the Internal Revenue Service.
In pleading guilty, Mann admitted that from 2013 to September 2019 he engaged in a fraudulent scheme to deceive banks and financing companies into loaning his companies tens of millions of dollars. Because he could not repay the loans with legitimate business revenues Mann expanded the fraud by stealing and diverting millions of dollars that were entrusted to his payroll companies and engaging in the daily kiting of millions of dollars among bank accounts he controlled.
The fraudulent scheme began to unravel when one of his banks froze his accounts. This action set off a chain of events that left his payroll companies unable to make the payroll for hundreds of small business customers nationwide. The action also caused one large financial institution to seek to get part of its funds back resulting in some employees having their bank accounts debited for the amounts of several payroll checks.
Mann pleaded guilty to one count of conspiracy to commit wire fraud, one count of aggravated identity theft, nine counts of bank fraud, and one count of filing a false tax return. He is scheduled to be sentenced on Dec. 10 by Sr. U.S. District Judge Lawrence E. Kahn.
He will be sentenced to two years in prison on the aggravated identity theft conviction. The other charges are expected to bring three years’ incarceration for filing a false tax return, 20 years for wire fraud conspiracy, and 30 years for bank fraud.
Mann also agreed to an order requiring him to pay slightly more than $1 million in restitution, to forfeit assets including $14.5 million which has been seized by the government, 30,000 common shares of Pioneer Bancorp Inc. stock which has also been seized by the government, and a 2020 Jeep Gladiator vehicle. News reports posted shortly after Mann made his plea said his attorney announced his client does not have $1 million to make the required restitution.
This case against Mann was investigated by the FBI as well as Internal Revenue Service-Criminal Investigation. It was prosecuted by Assistant U.S. Attorneys Michael Barnett and Cyrus P.W. Rieck.
Mann’s intricate fraud scheme had multiple layers.
He obtained tens of millions of dollars in loans from three financing companies in New York, Colorado and California by falsifying his companies’ revenues and receivables. He then falsely told the financing companies that Minnesota-based UnitedHealth Group Incorporated (UHG) and its subsidiary OptumInsight Inc. (Optum) owed millions of dollars to his companies.
As part of the scheme, he created fake invoices reflecting the fictitious debt and assigned them to the financing companies as collateral for the loans.
He later fraudulently obtained a line of credit from several Capital Region banks. The lines of credit totaled $42 million by 2019. To obtain the lines of credit Mann created companies whose sole purpose was to further the fraud by generating fake invoices, disguising sources of funds, and artificially inflating his assets.
The inflated assets represented to the banks that his fake businesses had revenues and receivables based on consulting work for Optum and UHG as well as other well-known companies including 3M, Best Buy, and T-Mobile.
Mann hid the tens of millions of dollars in loans he was receiving from the financing companies and was using the lines of credit to pay down these loans. He provided false financial statements and individual and corporate tax returns to his outside auditor which in turn made inaccurate reports to the banks.
Mann also misappropriated payroll monies entrusted to MyPayrollHR and another company by changing the instructions within a computer-based electronic network used for processing transactions between participating financial institutions.
Those files were supposed to transmit payroll monies from MyPayrollHR’s to the employees of the contracted businesses.
Although his companies’ contracts with the company Cachet Financial Services specified that automated clearing house transfers would route payroll funds from the employers’ accounts to a designated Cachet trust account and then directly on to the customers’ employees, Mann changed the instructions inside the automated clearing house files that were provided to Cachet.
This was done in order to divert payroll funds from MyPayrollHR’s customers to accounts he personally controlled at Pioneer Bank. When Pioneer Bank froze Mann’s corporate accounts on or about Aug. 30, 2019, it froze the payroll funds in those accounts and caused several thousand people across the country to not receive a payroll payment.
After initially trying to claw the money back from the employee accounts, Cachet, as the guarantor of the payroll funds, paid about $7.2 million to the employees of MyPayrollHR’s customers.
In a meeting with U.S. attorneys and the FBI last fall Mann estimated that he fraudulently obtained approximately $70 million with the scheme which has not been paid back.
Mann is the second person to plead guilty in connection with this fraud. In February former Optum employee Luke E. Steiner, 32, of Minneapolis, Minn. pleaded guilty to conspiring with Mann to defraud two financing companies out of millions of dollars.
Several civil lawsuits have been filed surrounding Mann’s actions in addition to the criminal filing.
U.S. Attorney Grant C. Jaquith in a statement said fraud was staggering in scale, caused more than $100 million in losses, and wove a web of deception so complex that it eventually ensnared hundreds of small businesses and several thousand workers across the country.
“Today’s plea is the start of holding him accountable for the terrible harm he inflicted on these victims, as well as the banks and other companies that trusted him with their money and believed his sophisticated lies,” he said in the statement.
FBI Special Agent in Charge Thomas F. Relford who headed up the investigation said in a statement agreed the deception impacted thousands of people across the country and left the businesses that trusted Mann with their payrolls unable to pay their employees who survive on timely paychecks.
“While many of the businesses were able to recover, others experienced irreparable hits to their reputations,” Relford said in a statement. “The admission of guilt is a small step forward in their process to rebuild.”