Pinnacle founder is headed to prison after his payroll company misspent $7 million.

Monterey insurance agent Ann Appel remembers the day in October 2016 when she heard something was awry with Pinnacle Workforce Solutions, the payroll company that she relied on for 10 years to process her employees’ paychecks. She knew the owner, John McEwan, through Rotary Club connections, and trusted him with her business.

“I went by the office and there was quite the long line of people out the door, and the sheriff was there. I said, ‘Oh, my gosh.’”

The company McEwan started in 1991 had collapsed and Appel was out $1,500, but some of her insurance clients who also contracted with Pinnacle were out on the order of $50,000 to $75,000. Appel reached out to McEwan, but he never replied. She did hear from the U.S. Department of Justice, which was investigating McEwan for fraud.

A year later, in October 2017, McEwan was charged with wire fraud, focusing on one unauthorized transfer of $220,000 from a client’s account to Pinnacle in late September 2016. McEwan, 69, pleaded guilty on March 20, 2018, and on July 24, he was sentenced by U.S. District Court Judge Beth L. Freeman in San Jose to five years and three months in prison and three years of supervised release. As part of a plea agreement, McEwan admitted that starting in 2009 he began wiring funds out of clients’ bank accounts to use them to pay other clients’ payrolls and keep his struggling company afloat. The FBI estimates McEwan took and misspent nearly $7 million.

“None of that money went into John’s pocket,” insists McEwan’s attorney, Lawrence Biegel. Instead, Biegel says, the money went toward trying to expand the business nationally. Biegel says only about 10 percent of Pinnacle’s 1,000 clients lost money, some located in Louisiana and Texas. Local clients included four churches and Britannia Arms in Monterey.

McEwan got Pinnacle into a hole he thought he could fill before anyone found out what was happening, Biegel says, and the company collapsed in 2016 after McEwan was hospitalized for a medical condition and couldn’t shift monies around.

McEwan is sorry and embarrassed, says Biegel, so much so he tried to kill himself shortly after a last-ditch effort to save Pinnacle, and the jobs of his 25 employees, in 2016.

Based on McEwan’s involvement in volunteering for charitable efforts like the Rotary Club, he was sentenced to less than the maximum sentence of six-and-a-half years. Biegel says McEwan also fully complied with investigators, handing over all documents and working with the government to secure release of more than $1 million in clients’ funds being held by a bank. A hearing to determine how much restitution he will have to pay is scheduled for Oct. 2; he’s set to begin his prison sentence on Oct. 5.

Appel has no plans to make a claim – “I’m pretty small beans” – but she hopes others who lost significantly more will get some funds returned. For her, the loss is more emotional.

“I felt really betrayed,” she says. “You go into business with people you know because you trust them. It shakes you.”