A small business' big loss

Melissa and Robert Meltzer inside their My Gym children's fitness franchise in Los Angeles. Melissa Meltzer said they'd been with LA Payroll for six or seven years, and that the first hint of trouble arrived in a state notice that their third-quarter taxes hadn’t been paid. The fourth-quarter payments weren’t made, either. All told, the business is out about $55,000, she said. (Jay L. Clendenin/ Los Angeles Times / January 31, 2014)

They were chefs and chiropractors, haircutters and hoteliers, some 150 small-business owners across Southern California.

All had entrusted LA Payroll, a privately held company with a single office, to deal with financial necessities that can be a perennial headache: Issuing paychecks and W2 forms. Handling employment-tax payments.

The firm's clients first realized something was amiss when the IRS and the state sent out late-tax letters. LA Payroll employees soon confirmed their fears.

The money in their impound accounts was gone. And so was Tovmas Grigoryan, LA Payroll's owner.

"It is a very awful situation, to say the least. A lot of people got hurt," said Babak Dardashti, a Los Angeles dentist. "I lost $20,000 myself. For a small business, a chunk like that all at once is not easy to swallow."

People who worked for Grigoryan, 56, said he personally oversaw the tax impound accounts. Clients' individual losses range from hundreds of dollars to more than $350,000, according to police reports, court records and interviews.

Lyuba Kovzhun, a former payroll manager who previously had dealt with the impound accounts, estimated total losses at $4 million.

Payroll services companies are not subject to rigorous regulation by state or federal bodies that oversee banks and other financial institutions. Nor do most states, including California, require them to be bonded. If the tax money they collect disappears, it is the business owners who are on the hook for the amounts owed, plus interest and penalties.

It was just before Christmas, Kovzhun and other former employees said, when the company started receiving notices from the California Employment Development Department and the Internal Revenue Service that the last six months of payroll taxes owed had never been paid.

That was about the time, they said, that Grigoryan told them he was headed to Palm Springs for the holidays.

"I have no idea where he is, maybe Russia," his brother Ruben Grigoryan told The Times, without addressing the allegations. "He left about a month ago. We had a merry Christmas together, and he left. He said he had some business in Russia."

Another family member said Grigoryan, who could not be reached for comment, was in Armenia.

LA Payroll has closed its Wilshire Boulevard office, leaving stunned and angry clients in the lurch and highlighting the question of who, if anyone, investigates when such businesses are accused of wrongdoing.

Dardashti and others said they have filed complaints with police departments and state and federal agencies, including the LAPD, the FBI and the IRS. But clients said they were given little encouragement by various police officials and federal agents.

"Justin Bieber eggs his neighbor's house, and 15 sheriffs show up to get to the bottom of it," Dardashti said in late January. "We lose millions and nobody cares."

An agent with the Department of Homeland Security, which has wide latitude to investigate financial crimes, has since begun looking into the allegations, according to an agency spokeswoman.

A surprise to clients

That Grigoryan even owned LA Payroll surprised clients, many of whom had signed up years ago with Gene Moroz, the company's founder.

For a monthly fee, Moroz issued employee paychecks and W-2s for small businesses. He also handled their direct deposits and made their quarterly tax payments to the state and the IRS.

When a broker brought him a prospective buyer in 2011, Moroz said, he took the offer. "I'd been doing it at that time for about 10 years and wanted to move on to other things," he said.