May 2010 Update on Paybooks Case:
ATTORNEY GENERAL CUOMO OBTAINS $2.2 MILLION JUDGMENT AGAINST ROCHESTER PAYROLL COMPANY FOR SCAMMING HUNDREDS OF AREA BUSINESSES
ROCHESTER, N.Y. (May 5, 2010) - Attorney General Andrew M. Cuomo today announced that his office has obtained a court order and judgment for more than $2.2 million from a Rochester-based payroll company that defrauded hundreds of area businesses through an elaborate scheme where the owner kept money intended for taxes, using it instead for personal expenses.
Under a court order and judgment issued in State Supreme Court of Monroe County, Paybooks, Inc. and its president Jeffrey Syke are permanently barred from the payroll business and must set aside $2 million for restitution for eligible consumers. They must also pay a civil penalty of $5,000 for each instance of a deceptive act (totaling $200,000) and $2,000 in costs. A court-appointed receiver is overseeing the liquidation of the company’s assets as well as the distribution of restitution. Consumers have until August 31, 2010 to file a complaint with the Attorney General’s Office in order to be eligible for restitution.
The Consent Order and Judgment can be viewed at www.ag.ny.gov/features/paybooks/pdf/ConsentOrderandJudgment.pdf
March 2010 Update for Paybooks Clients with Tax Questions:
The Internal Revenue Service (IRS) has created a specific Paybooks group in Rochester to address tax issues relating to clients of the company. Individuals with Paybooks-related inquiries may contact 585-262-1130.
Paybooks clients who have state taxation questions should contact the New York State Department of Taxation and Finance's Business Liability Resolution Office at 866-697-2499 or 518-485-0384.
As of March 2010, the Attorney General's Office has received complaints from 385 business clients. Records show that Paybooks had more than 1,100 clients. Business owners who have not yet filed a complaint with the Attorney General's Office are urged to do so as soon as possible by clicking here, and sending it with supporting documentation by fax or mail to:
New York State Attorney General's Rochester Regional Office
Suite 200
144 Exchange Blvd.
Rochester, NY 14614
Fax: 585-546-7514
Current status of the Paybooks case:
The Attorney General's Office has been working in conjunction with the court-appointed receiver to ensure proper liquidation and collection of all eligible assets belonging to Sykes and Paybooks for use toward restitution to defrauded clients. The majority of the assets have been sold or are on the market. The Monroe County District Attorney is pursuing a separate criminal matter against Sykes.
Over the next several months, all known Paybooks customers will be contacted by either the Attorney General's Office or the court-appointed receiver to ensure they have submitted the relevant complaint information. Once the complaints are verified, the court-appointed receiver will calculate restitution for each client and file a report with the court detailing the findings. The court will then determine the amount of restitution to be provided to each client, which will be based upon the money collected in the receiver's account.
The Attorney General's Office will seek a court order and judgment for the total amount of restitution sought, costs and penalties.
About the Paybooks Investigation:
In June 2009 Attorney General Cuomo filed a lawsuit against Rochester-based payroll company Paybooks, Inc. after an investigation revealed the company’s president, Jeffrey Sykes of Wayland, was allegedly defrauding millions of dollars from hundreds of area businesses.
In addition to filing this lawsuit, Cuomo obtained a court order freezing the assets of Paybooks, Inc. and Sykes. The order also appointed a receiver to operate the company and calculate customer tax liability. An investigation by the Attorney General found that Sykes used his customers’ money for personal and operating expenses when he should have been forwarding this money to governmental agencies as payroll tax payments. The investigation to date reveals that Paybooks' customers owe in excess of $1.8 million in late tax payments, interest and penalties. The Attorney General’s lawsuit against Sykes and Paybooks seeks restitution for customers and costs and penalties to the state, as well as barring the company from doing business in New York state.
Paybooks, Inc., located at 595 Blossom Road in Rochester, provided payroll services to approximately 1,100 small businesses (with between 6-7 employees) in the greater Rochester area. According to its marketing literature, Paybooks assures “our clients of accurate and timely payrolls each and every pay period…. No more missed deadlines and possible tax penalties.” However, the Attorney General’s Office received numerous complaints in May 2009 from business owners regarding Paybooks’ failure to file federal and state withholdings and unemployment taxes, with some unpaid taxes dating back to the Third Quarter of 2008.
Cuomo’s investigation revealed that Paybooks conducted business under a plan devised by Sykes to pay operating and personal expenses out of the money collected from the customers, and then paid the various taxing entities out of “new money” being withdrawn from the accounts of other customers. Similar to a Ponzi scheme, 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 or paid the authorities late, resulting in the assessment of interest and penalties against their customers. In an effort to cover up the scheme and keep his customers, Sykes and Paybooks routinely misrepresented to customers the status of tax payments, the cause of the late payments and the health of the business.
The investigation determined that Paybooks used the customers’ money to pay overhead expenses while creating insurmountable debt. Sykes also routinely paid his personal expenses and took large cash withdrawals out of the business accounts that contained money intended to pay customers’ taxes.
Attorney General Cuomo urges any consumers or business owners who believe they have been defrauded by Sykes or Paybooks to file a complaint as described above. For further information, contact his Rochester Regional Office at 585-546-7430. The matter is being handled by Assistant Attorney General-in-Charge of the Rochester Regional Office Debra Martin.