Criminal charges sought in GarCo in Paybooks scam
The Ninth District Attorney’s Office is considering criminal charges against a Rochester, N.Y.-based payroll processing service that bilked at least two local nonprofit organizations out of thousands of dollars intended for payroll taxes.
Alpine Legal Services is representing the Carbondale Council on Arts and Humanities (CCAH), United Way of Garfield County and a handful of other small businesses that were using Paybooks Inc. It is seeking out any other businesses locally the used the service as well.
“Paybooks was contracted to do payroll services for over 1,000 clients nationally, including many locally,” said Alpine Legal Services Executive Director Jonathan Shamis.
Paybooks operated a satellite office in Glenwood Springs for a brief time in 2004.
In June, CCAH and United Way were taken for thousands of dollars when Paybooks failed to make income tax and unemployment withholding payments to state and federal agencies.
CCAH was left holding the bag for $12,000 in unremitted tax payments and penalties. United Way was bilked for about $2,100, UW of Garfield County Executive Director Micaela Folsom said.
“They had access to bank accounts and were submitting documentation say they were paying the payroll taxes, but they apparently decided it was much more fun to keep the money for themselves,” Shamis said. “We want to help anyone else who is out there that may have been victimized.”
New York Attorney General Andrew Cuomo filed a lawsuit in June against Paybooks after an investigation revealed that the company’s president, Jeffrey Sykes, allegedly defrauded millions of dollars from his payroll services clients.
Similar to a Ponzi scheme, Sykes allegedly devised a plan to pay operating and personal expenses out of the money collected from customers, and then pay the various taxing entities out of “new money” being withdrawn from the accounts of other customers.
“Over time, the ‘new money’ was not sufficient to cover the taxes when they were due, so Sykes intentionally failed to make payments on behalf of hundreds of customers,” the lawsuit claims.
Cuomo obtained a court order freezing the assets and records of both Paybooks and Sykes personally. Restitution for the amount defrauded plus $5,000 in penalties is sought for each of the victims.
Sykes was arrested in late June on charges he defrauded his clients out of more than $2 million. In August, a Monroe County, N.Y., grand jury indicted Sykes for grand larceny and criminal tax fraud. If convicted, he could face up to 15 years in prison. He is now free on $30,000 bail.
However, according to Shamis, any restitution that comes out of the pending civil and criminal actions in New York is unlikely to benefit any victims in the Roaring Fork Valley.
“Our concern is for the people locally who we are dealing with,” Shamis said. “A civil judgment could be discharged in bankruptcy court, and we would see nothing. The best way to go after a criminal restitution judgment here.”
Assistant District Attorney Jeff Cheney could not comment specifically on a potential case against Paybooks in Garfield County.
“We have received the information and are reviewing it,” he said Friday. “Obviously, it takes facts that support the elements of a crime, that we can prove beyond a reasonable doubt.
“We do hope that, if there are other people out there who used Paybooks, they contact local law enforcement agencies if they believe a crime was committed,” Cheney said.
Folsom said that, like CCAH Director Ro Mead and her staff, she realized something was up when she didn’t get a paycheck in early July. That’s when she learned of Sykes’ arrest and the allegations against Paybooks.
“The amount of payroll taxes was only about $2,100,” she said. “We’re pursuing it along with the 900 or so other businesses. But our hope of getting anything back is slim unless something happens here.”
United Way also found out it was overpaying for payroll taxes earlier this year, and is expecting a refund from the Department of Revenue and Internal Revenue Service.
“So, we might end up breaking even,” she said.
Folsom had been working for CCAH before she took over as United Way director, and said she liked the service Paybooks offered in her experience at CCAH.
“They had a local representative who would come by and see if we needed anything,” she recalled of the period in 2004 when Paybooks had a local office. “They had a pretty big staff, but then it seemed like it was down to only two people, and then nothing.”
Mead said CCAH ended up paying the unremitted taxes, after it had already paid $6,000 in payroll withholdings that apparently never made it to the collection agencies.
“We’re fighting now to not have to pay the penalty or interest, but I don’t know the exact amount,” she said. “They [The IRS and DOR] do know we’re fighting it, that we’re victims.”
In the meantime, “we do want to identify who the other victims in the valley are,” Shamis said.
Any businesses that worked with Paybooks and thinks they may have been defrauded should contact Shamis at Alpine Legal Services, 945-8858.
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