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Former Paybooks owner seeks to shave prison time

Rochester Business Journal
August 22, 2014

Alleging violations of his constitutional rights and inadequate legal representation, former Paybooks Inc. owner Jeffrey Sykes is disputing his federal tax-evasion sentence.

In papers filed in U.S. District Court in Rochester, Sykes asks the court to reconsider the eight-year sentence he received two years ago from District Judge David Larimer.

He is not seeking to overturn or reduce the term. Rather, Sykes maintains that legal mistakes led to his not being fully credited for time served before his sentencing.

Sykes is now serving the federal sentence. He was paroled and released from a state prison last year after serving three years and four months of a three- to nine-year state sentence.

Sykes’ attorney, James Wolford of the Wolford Law Firm LLP, contends in a court filing that the former Paybooks chief is entitled to trim at least a year off his federal prison term, currently slated to run until Jan. 1, 2019.

Sykes’ former lawyer, Matthew Parrinello of the Parrinello Law Firm LLP, mishandled his case, overlooking a key step, Wolford and Sykes claim in motions filed this month. Reached this week, Parrinello declined to comment.

Sykes’ company once provided payroll services to some 1,000 Rochester-area small businesses and non-profits and a handful of small Colorado companies and non-profits. He pleaded guilty to federal tax fraud and violation of interstate commerce laws in 2011 while serving time in a New York prison on state tax fraud and grand larceny convictions.

Sykes is currently serving the remainder of a concurrent eight-year sentence in the McKean Federal Correctional Institution, a medium-security prison in Bradford, Pa.

His federal and state convictions both stem from his embezzlement of millions of dollars from Paybooks clients.

Given access to client bank accounts, Sykes withdrew sums to hold in escrow for tax payments but instead used the money for his own purposes. Hundreds of Paybooks clients whose 2008 and 2009 taxes Sykes failed to pay were unaware that their firms owed back taxes and were piling up interest charges.

For many, the first inkling that anything was amiss came when the Internal Revenue Service or the state dunned them for back taxes.

Bridgekey Corp., a four-partner Brighton engineering firm, found that it had a $20,000 delinquent tax bill when it checked with tax officials after reading news accounts detailing Sykes’ 2009 arrest, partner Frank Weiner previously told the Rochester Business Journal.

For several years Weiner maintained a website where former Paybooks clients could share stories and track the progress of Sykes’ court cases and officials’ liquidation of Sykes’ assets.

Sykes’ federal and state sentences included orders to repay clients. In 2012, when a court-appointed receiver finished liquidating Sykes’ assets, more than 500 former Paybooks clients who state and federal officials said were owed some $4 million got restitution amounting to 13 cents on the dollar.

Weiner said he and many other people burned in the Paybooks debacle had come to terms with their losses. Others, including business owners whose firms were forced to close, have been less forgiving.

Jody Siegle, executive director of the Monroe County School Boards Association, testified at Sykes’ 2012 sentencing hearing that the non-profit had paid the same $9,800 tax bill twice: first to Sykes and later to the Internal Revenue Service. That was a fate shared by all whose taxes went unpaid in the Paybooks affair.

“As an organization that was in arrears on our taxes, despite the fact that this was no fault of our own, what we were doing was faced with the obligation of proving ourselves innocent against a presumption of guilt, because apparently there are people who do fail to pay their taxes and then give reasons why they haven’t done it,” Siegle told the court. “But we were victims, we felt like victims and dealing with the government only increased that sense that we were dealing with a very, very difficult situation.”

Parrinello told Larimer that Sykes “was remorseful from day one.”

“He tried to help from day one, and I know that’s of little reprieve to the victims in this case, but I think it says something to Mr. Sykes’ character,” Parrinello said. “I think Mr. Sykes … was tired of living the way that he was living, as far as the knowledge of how he was ruining the companies that he was hired to represent.”

Sykes had long been in the habit of “borrowing” from escrow accounts holding client money marked to pay taxes, a practice he had been assured by lawyers was legal as long as he paid it back, which he managed to do for years, Parrinello said. The trouble started when Paybooks’ business slowed and Sykes could no longer replace borrowed sums.

In the papers filed this month, Sykes claims his Fifth and Sixth Amendment rights were violated.

By not being arraigned in a federal court, “I was deprived of the opportunity to formally hear the federal charges that were filed against me in violation of my constitutional rights,” he maintained.

Federal prosecutors’ failure to have him arraigned meant that he was not transferred to federal custody but instead remained jailed on state charges in Seneca County. The time he spent in the Seneca County Jail as well as 12 months spent in a state prison should be shaved off his federal sentence, which by Larimer’s order was supposed to run concurrently with his state time, Sykes argues in the court filing.

In addition to blaming Parrinello for not insisting on having him arraigned and transferred to federal custody, Sykes faults federal prosecutors for dragging their feet.

“By the time the federal government filed charges against me, I had already served three months of my New York State time. By the time I was sentenced …, I had been in state custody for approximately fifteen and a half months. None of this time counted toward my federal sentence, even though both of my sentences resulted from the same conduct,” the former Paybooks chief states in his appeal.

“As a convicted fraudster who admitted his guilt in open court, the government believes the court was well within its discretion in sentencing Jeffrey Sykes for his criminal conduct,” said Barbara Burns, spokeswoman for the U.S. attorney’s office in the Western District of New York, in a statement. “The government stands ready to address any allegations made by this defendant as directed by the court.”

In the filing to appeal his sentence, Sykes maintains he is entitled to have his sentence cut by 15 months. Nevertheless, he adds, he would accept a 12-month reduction.

Whether Larimer will agree with Sykes’ math remains to be seen.

A posting on the state Department of Corrections’ website lists the most distant date on which Sykes could have been released from the Clinton Correctional Facility in Danemorra as Oct. 21, 2019. That is more than 10 months past the Jan. 1, 2019, date on which he is slated to be released from federal custody.

Contacted this week, Weiner was surprised to learn that Sykes had been released from state prison in April of last year, months before Oct. 21, 2013, the date the Department of Corrections had marked as the earliest on which Sykes was slated for a first parole hearing.

“I thought I registered with the (state) to be notified if there was a parole hearing. I do not believe I received any such notice,” Weiner said.

Still, he added, he would not argue against a 12-month reduction in Sykes’ federal prison term.

Weiner’s reasoning: “If Mr. Sykes gets out one year earlier, he will be able to get on with the business of the full restitution to everyone he stole from.”

8/22/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.




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