NY Payroll Company Vanishes with $35M

Since this is sort of my beat:<p>If this ever happens to you, immediately call bank, say “Electronic transaction posted in error.”, specifically identify the transaction, and ask what address the bank takes Regulation E written complaints at. If the CSR doesn’t know that answer, their supervisor does, or in the alternative FedEx HQ addressed to chief counsel or head of compliance. The letter just needs to state transaction details, date you first called them, and your desired action (“Credit me back $X.”), but it’s marginally more effective to say Regulation E in it since that will put the fear of God into whomever opens it.<p>You’ll get the money back.

This was confusing to understand, because multiple bad things happened. Normally:<p>* Step 1: Transfer funds from each Employer&#x27;s account to Cachet&#x27;s holding account<p>* Step 2: Transfer funds from Cachet&#x27;s holding account to each Employee account<p>Both of these steps are handled with an &#x27;instructions file&#x27;.<p>---<p>The crime (or horrible mistake that <i>really</i> looks like a crime):<p>Step 1&#x27;s file was changed so that the funds went to an account at Pioneer Savings Bank (controlled by MyPayrollHR)<p>Step 2&#x27;s file was sent as it normally would be.<p>----<p>Mistake 1: The file for Step 2 was processed, and funds from Cachet&#x27;s holding account were transferred to employees, despite funds from Employers not coming in.<p>Apparently Cachet had at least $26M extra in their holding account for this to work.<p>As a result of this, Cachet tried to reverse these transactions, since basically they hadn&#x27;t actually been paid.<p>----<p>Mistake 2: The reversal file was improperly formatted. NACHA rules say these files should be ignored or rejected, but..<p>----<p>Mistake 3: Some financial institutions processed the improperly formatted file anyway.<p>----<p>To fix Mistake 2, Cachet submitted a new reversal file, which was then <i>also</i> processed by the companies.<p>It sounds like this &quot;reversal file&quot; was actually just a transfer in the other direction (as opposed to &quot;undo transaction ID 937641745&quot;), so of course it would make sense that it was processed.<p>----<p>As a result, all employees paid via MyPayrollHR were paid, then had that payment removed. Some also had the same payroll amount removed a second time.<p>One thing I haven&#x27;t figured out, is apparently the MyPayrollHR account at Pioneer Savings Bank is &#x27;frozen&#x27; -- but I can&#x27;t find any reporting about whether it has $26M in it or not. Meanwhile the CEO has disappeared.. So did he get the money, or just cause a massive life disruption for thousands of people?

In the US anyone with your bank account number can debit your account irreversibly?<p>In Europe (with SEPA Core) we have 8 weeks to reject any debit even if the entity issuing the debit has a signed mandate to debit the account.

This does seem like a nightmare scenario for the vast majority (4 in 5?) of Americans who live cheque-to-cheque.<p>Your pay is yanked, life doesn&#x27;t stop and the bills keep coming. A few days, a week later, it&#x27;s corrected and the pay reappears. Who&#x27;s on the hook for your overdraft fees?

It seems the FBI in the NY Albany office is now looking into this.<p><a href="https:&#x2F;&#x2F;twitter.com&#x2F;FBIAlbany&#x2F;status&#x2F;1171827423333289985" rel="nofollow">https:&#x2F;&#x2F;twitter.com&#x2F;FBIAlbany&#x2F;status&#x2F;1171827423333289985</a>

Honestly, this is really scary. Personally, I would be unable to take a [2x my bi-weekly salary] hit to my account and that would result in a pretty negative balance. I think I recently saw an article about a bank depositing too much money into an account and the account owner spent it then got arrested. It just seems like the people in charge of how we get&#x2F;hold our money can screw up with minimal blow back, yet the receiver of the money is almost always the one who draws the short straw. I could be wrong, but it really makes me question the safety of (what little) money I have.

Interesting, and a bit frightening about the lack of security.<p>I have had to work with the equivalent process for payments in the UK - we where fixing up a problem when the accounts receivable system would not cut the BACS tape for 6 months!<p>Submitting a BACS Tape required the use of onetime codes and a physical device and this was in the late 80&#x27;s

Besides the banking issues, when do the people get paid?<p>If the disappeared payroll company got money from employers, it&#x27;s possible some employers may not have enough cash to pay a second time.<p>Then they out of business, or close to it.<p>The old businessman&#x27;s phrase &quot;You&#x27;ve never had to meet a payroll&quot; is really meaningful here, the scramble to pay everyone.

Is it possible to protect one&#x27;s direct-deposit wages from (unjustified) ACH reversals, by transferring funds into a different account ASAP after the deposit occurs?<p>I.e., by maintaining an account that serves only as a temporary inbox for direct deposit?

This may be tangential and specific to United States, but is there a way to prevent someone from withdrawing money from your account if they know the account and routing number? Both of those numbers are on checks.

Why such a complicated transfer chain just to pay salaries? In my country you just export a bank file from your payroll system and that&#x27;s it.

What form of financial network allows a random company to take money from people without any authorization or interaction on their part?<p>If the employees had somehow set up whatever the USA calls a direct debit, then sure, I can see a reason for this to happen. But through mistake or malice they are still able to dip into peoples account - that&#x27;s the real issue here, surely?

Really makes me appreciate the non-obvious complexity for companies like justworks (and all the other companies) to operate in this space

ok

Shades of office space! I&#x27;m calling it... the crack coder screwed up the instructions files! Instead of redirecting fractional pennies from each employee to his pioneer bank account, he redirected the whole shebang! boom! ruh ohh!

ACH reversals are horrible when they mistakenly happen. They really are a selling point for getting paid in cryptocurrency.

And people say crypto exchanges are bad because of exit scams. The same thing essentially happened here, except the authorities are actually investigating.