Banker & Tradesman photo / file

Berkshire Bank has filed a lawsuit in New York state Supreme Court against Albany, New York-based Pioneer Bank over a loan that defaulted following the collapse of a cloud-based payroll company.

The lawsuit accuses Pioneer of fraudulent concealment and negligent misrepresentation of information. Berkshire Bank is seeking damages of at least $15.6 million, the amount it lost in the participation agreement.

Berkshire Bank had announced in September 2019 its participation in the defaulted loan to MyPayrollHR. The bank took a $12 million hit on its third quarter earnings as a result of the default.

According to the lawsuit, Michael Mann, president and CEO of MyPayrollHR and its parent company, ValueWise, confessed to the FBI that he created fake businesses in 2010 or 2011, kiting millions of dollars between business and personal accounts. Kiting involves inflating balances in accounts to create the appearance of having more money.

The lawsuit also claims that account statements between September 2018 and August 2019 revealed multiple overdrafts totaling more than $100 million. Berkshire Bank alleges it did not receive copies of these statements until October and November 2019, after the loan had defaulted.

The account statements also indicate suspicious kiting and commingling activity, including frequent, six- and seven-figure, round-dollar mobile deposits and internet transfers, followed by same-day withdrawals, according to the lawsuit.

“Berkshire would not have agreed to participate in and retain, or make advances and re-advances under, the loans had Pioneer disclosed the above overdraft, kiting, commingling, or third-party borrowing activity,” the lawsuit states.

Berkshire also claims that Pioneer Vice President David Blessing had represented himself to Berkshire Bank as Mann’s longtime banker. The lawsuit states that Blessing had been friends since graduate school with Mann and called ValueWise a “mini-Berkshire Hathaway.”

Chemung Bank, the other bank involved in the loan, filed a separate lawsuit against Pioneer Bank last week as well.

The lawsuits were first reported last week by the Schenectady, New York-based The Daily Gazette. MyPayrollHR, a cloud-based payroll and human resources firm, was headquartered in Clifton Park, New York.

In an interview last week with The Daily Gazette, Pioneer CEO Tom Amell said Berkshire and Chemung did not take enough steps to protect themselves, adding that the banks had unlimited access to financial records. Amell also denied in the interview that Pioneer had attempted to deceive or defraud Berkshire and Chemung.

Berkshire Bank Files Lawsuit Over Defaulted Loan

by Diane McLaughlin time to read: 2 min