NY Payroll Company Vanishes with $35M

This was confusing to understand, because multiple bad things happened. Normally:

* Step 1: Transfer funds from each Employer's account to Cachet's holding account

* Step 2: Transfer funds from Cachet's holding account to each Employee account

Both of these steps are handled with an 'instructions file'.

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The crime (or horrible mistake that really looks like a crime):

Step 1's file was changed so that the funds went to an account at Pioneer Savings Bank (controlled by MyPayrollHR)

Step 2's file was sent as it normally would be.

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Mistake 1: The file for Step 2 was processed, and funds from Cachet's holding account were transferred to employees, despite funds from Employers not coming in.

Apparently Cachet had at least $26M extra in their holding account for this to work.

As a result of this, Cachet tried to reverse these transactions, since basically they hadn't actually been paid.

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Mistake 2: The reversal file was improperly formatted. NACHA rules say these files should be ignored or rejected, but..

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Mistake 3: Some financial institutions processed the improperly formatted file anyway.

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To fix Mistake 2, Cachet submitted a new reversal file, which was then also processed by the companies.

It sounds like this "reversal file" was actually just a transfer in the other direction (as opposed to "undo transaction ID 937641745"), so of course it would make sense that it was processed.

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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.

One thing I haven't figured out, is apparently the MyPayrollHR account at Pioneer Savings Bank is 'frozen' -- but I can'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?

Can't you disable overdraft?

You can't currently do that can you? If you can, please tell me how because I would love to know. :-)

If you mean that this could be implemented, then great I'm all for it. From a technical perspective it doesn't seem like it should be difficult. I'm under the impression it doesn't exist most likely because the banks don't want it to. Hence the benefit of using cryptocurrency.

Sure, but at least you'll still be able to pay rent etc without late-payment fees. A single overdraft fee is way less bad.

I'm not sure these ACH transactions are actually processed like reversals. Otherwise, you wouldn't be able to reverse the same transaction twice, as happened here. They just pulled money back out.