ValueWise CEO Michael Mann pleads guilty to $100 million fraud

 

Date: August 12, 2020

Contact: newsroom@ci.irs.gov

ALBANY, NEW YORK – Michael T. Mann of Saratoga County, New York, pled guilty today to orchestrating a years-long fraud that caused more than $100 million in losses to banks, financing companies, and other businesses.

Mann operated ValueWise Corporation, based in Clifton Park, New York, as well as subsidiary companies including MyPayrollHR.com LLC. In pleading guilty, he 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 Mann could not repay the loans with legitimate business revenues, he 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.

Mann's scheme collapsed in early September 2019, when one of his banks froze his accounts, setting off a chain of events that left his payroll companies unable to make payroll for hundreds of small business customers nationwide.

Mann pled 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.

Mann's scheme had multiple layers, including:

  • Mann obtained tens of millions of dollars in loans from three financing companies, located in New York, Colorado and California, respectively, by falsifying his companies' revenues and receivables. Mann 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. Mann created fake invoices reflecting the fictitious debt and assigned them to the financing companies as collateral for the loans.

     

     

  • Mann fraudulently obtained a line of credit ("LOC") from several Capital Region banks, which had grown to $42 million by 2019. To obtain the LOC, Mann created companies whose sole purpose was to further the fraud by generating fake invoices, disguising sources of funds, and artificially inflating his assets; falsely represented to the banks that his fake businesses had revenues and receivables based on consulting work for Optum/UHG and other well-known companies, including 3M, Best Buy and T-Mobile; hid the tens of millions of dollars in loans he was receiving from the financing companies, and that he was using the LOC to pay down these loans; and provided false financial statements, and individual and corporate tax returns, to his outside auditor, which in turn made inaccurate reports to the banks.

     

     

  • Mann misappropriated payroll monies, entrusted to MyPayrollHR and another company, by changing the instructions for digital Automated Clearing House ("ACH") files that were supposed to transmit payroll from MyPayrollHR's customers (employers) to the employees of the customers. Although his companies' contracts with Cachet Financial Services specified that ACH transfers would route payroll funds from the employers' accounts to a designated Cachet trust account and then directly to the customers' employees, Mann changed the instructions inside digital ACH files provided to Cachet, in order to divert payroll funds from MyPayrollHR's customers into accounts he controlled at Pioneer Bank. When Pioneer Bank froze Mann's corporate accounts on or about August 30, 2019, it froze the payroll funds in those accounts, and caused several thousand people across the country to not receive a payroll payment. Cachet, as the guarantor of the payroll funds, paid about $7.2 million to the employees of MyPayrollHR's customers.

Mann is scheduled to be sentenced on December 10, 2020 by Senior United States District Judge Lawrence E. Kahn. He will be sentenced to 2 years in prison on the aggravated identity theft conviction, and, on the other charges, faces maximum terms of 3 years (filing a false tax return), 20 years (wire fraud conspiracy), and 30 years (bank fraud). A defendant's sentence is imposed by a judge based on the particular statute the defendant is charged with violating, the U.S. Sentencing Guidelines and other factors.

Mann has agreed to entry of an order requiring him to pay $101,038,793.31 in restitution, and to forfeit assets including $14,522,474.90 already seized by the Government, 30,000 common shares of Pioneer Bancorp Inc. already seized by the Government, and a 2020 Jeep Gladiator.

Mann is the second person to plead guilty in connection with this fraud. On February 6, 2020, former Optum employee Luke E. Steiner, age 32, of Minneapolis, Minnesota, pled guilty to conspiring with Mann to defraud two financing companies out of millions of dollars.

This case is being investigated by the Internal Revenue Service-Criminal Investigation, as well as the FBI and is being prosecuted by Assistant U.S. Attorneys Michael Barnett and Cyrus P.W. Rieck.