WHEN THE BANK FAILS: HARD-EARNED RISK LESSONS FOR PEOS AFTER CHACHET AND SIGNATURE

The first sign that something was wrong was an out-of-service tone. Payroll had been drafted. Employees were not seeing funds. The portal looked normal. The customer service number did not.

That was my last direct contact with Cachet.

At the time, I was three months into running my new ASO firm in Richmond, Virginia. I had left a decade-long payroll sales career to start the business with my wife. We had a six-month-old baby at home. Just weeks earlier, she had asked me a simple question: “What’s the worst thing that could happen?”

Fraud, I answered confidently. If someone stole payroll funds, we could be personally liable.

That’s why I chose Cachet. They were bonded and insured for $50 million. At the time, that number felt enormous. In hindsight, it was irrelevant.

Within days, we learned that Michael Mann of MyPayrollHR had misappropriated roughly $70 million in payroll funds, exceeding the bond coverage. Cachet’s parent bank froze assets while attempting to unwind transactions. Payroll operators across the country were trapped in the middle.

We moved money from our own operating account, printed paper checks, and I drove across Virginia hand-delivering replacement payroll. We survived largely because we were small.

That experience taught me the first lesson.

LESSON ONE: PAYROLL BANKING RISK IS LIQUIDITY RISK, NOT FRAUD RISK

I had focused on theft. I had insured against fraud. I had vetted the vendor.

None of that mattered when access to funds stopped.

In payroll, timing is everything. A temporary freeze is operationally indistinguishable from insolvency. When client funds cannot move, it does not matter whether the underlying cause is fraud, regulatory action, or market panic.

Payroll banking risk is not primarily about bad actors. It is about access.

After Cachet, I became obsessed with eliminating ACH exposure entirely.

Trying to Engineer Around the Risk

While driving between clients delivering checks, I listened to a Planet Money episode where the host joked, “Put the word ‘blockchain’ in front of your business and people just throw money at you.”

The comment stuck, not because of hype, but because it forced me to question the rails we were using.

That search led me to Signature Bank and its real-time settlement platform. I cold-called the bank asking for Greg Tamberlane, whose name I had seen in a press release. I was routed directly to his cell phone while he was driving home.

Greg and his father, John Tamberlane, were key architects behind Signature’s innovation strategy. After visiting their New York headquarters, I began consulting with them to design what became Instant Payroll: real-time, end-to-end payroll funding built for the PEO space.

In the beginning, I split my time between running my payroll firm and building this technology. Eventually, I sold my firm and focused on the bank partnership. The product worked. It was fast, efficient, and free to use because the bank monetized deposits.

It felt like we had solved the problem.

Then Silicon Valley Bank failed. On Friday, March 10, 2023, while giving my kids a bath, I received a call from a large client asking if everything was okay with Signature. I called my buddy at the bank, who was at dinner with his family.

“We’ve secured additional liquidity,” he assured me. “We’re in constant contact with regulators. Everything is fine.”

Two days later, Signature entered FDIC receivership. The rails were gone again. That experience reinforced the second lesson.

LESSON TWO: SOPHISTICATION DOES NOT ELIMINATE CONCENTRATION RISK

Cachet was insured. Signature was innovative, well-capitalized, and deeply connected. Both were still single banking rails.

In both cases, I had layered technology, contracts, and operational structure on top of one primary institution. When that institution disappeared, the sophistication built around it did not matter.

Many PEOs diversify software vendors. Fewer diversify banking exposure with the same urgency. Innovation is not redundancy. Scale is not redundancy. Reputation is not redundancy. If payroll flows through one rail, that rail is your business.

What Both Failures Had in Common

In both cases, the warning signs were subtle. Portals functioned. Executives were confident. Reassurances were credible. Until they were not.

LESSON THREE: CONFIDENCE IS NOT THE SAME AS RESILIENCE

Before Cachet collapsed, nothing looked broken. Before Signature entered receivership, liquidity was publicly affirmed.

In both situations, leadership teams believed the system was stable. They were not lying. They were operating within the information available to them. But resilience is not about belief. It is about structure. If your contingency plan depends on someone else’s assurance, you do not have a contingency plan.

What Changed for Me

After selling my payroll firm and watching Signature collapse, I shifted my focus within the industry. Today, through HireWith, Astra Acquisitions, and Sticky Niches, I work closely with PEO and payroll leaders, navigating growth, exits, layoffs, and operational stress.

From that vantage point, one thing is clear: many PEOs still treat payroll banking as infrastructure. It is not infrastructure. It is concentrated operational risk.

A PRACTICAL CHECKLIST FOR PEO RISK LEADERS

If these experiences taught me anything, it is this:

• Maintain at least two independent banking rails.
• Document a payroll failure contingency plan with clear authority and execution steps.
• Pre-draft employee and client communications for funding disruptions.
• Stress-test liquidity freezes of 24 to 72 hours.
• Never allow client funds to be treated, operationally or psychologically, as working capital.

These controls are not theoretical. They are what separate disruption from disaster.

Cachet and Signature were not anomalies. They were warnings.

Having lived through two payroll-related bank failures, first as an operator and later as a banking partner, I have learned that resilience is not about predicting every crisis. It is about identifying which failures would be existential and building around them before they happen.

The next failure will not look like the last. But the PEOs that understand the difference between liquidity and fraud risk, between sophistication and redundancy, and between confidence and resilience will recognize it sooner and respond faster.