MANHATTAN (CN) – A payroll company stole nearly $1.7 million in a scheme that could affect over 300 small businesses and nonprofits nationwide, prosecutors say in New York County Court. Steven Reiger, 38, and Loretta Braun, 35, are accused of pocketing clients’ payroll tax withholdings and using the money to pay operating expenses for Citypay Payroll Services, and their own personal expenses.
Prosecutors say the defendants embezzled the money from 2004 through 2006 after building a list of hundreds of clients by offering services at low rates or for free. Citypay claimed it processed company payrolls, issued checks and filed tax forms. Prosecutors say the company also said it would debit funds from its clients’ bank accounts and forward them to tax authorities.
Instead, prosecutors say, all of the money went to the co-owners. As the scheme grew, the defendants used some of the money to pay off tax liabilities of clients from whom they had previously stolen, prosecutors say.
Reiger and Braun allegedly covered up the thefts by making phony entries in the company’s computer system, and by lying to the IRS and state officials who asked why its had not paid their payroll taxes. Prosecutors say the defendants also lied to clients who called after receiving late tax notices.
When the scheme collapsed, the defendants had stolen and accrued a tax liability for their clients of more $1.6 million, according to the District Attorney’s office. Prosecutors say those clients were left to pay the federal and state taxes a second time, with interest and penalties.
Reiger and Braun each face charges of scheming to defraud and grand larceny. Reiger was arraigned last week; Braun remains at large.