Smartphone-empowered Americans are using less cash, and automatic-teller machine (ATM) use has dropped steadily since peaking around 2015, according to the Federal Reserve.

“Since COVID, volumes at ATMs have declined by about 10%-20%,” Brinks, the armored-car company whose clients include banks, told bankers in a report earlier this year.

But that’s not what investors in Paramount Management Group, a Lancaster, Pennsylvania, automatic-teller machine operator founded and run since 2012 by entrepreneur Daryl Heller, were told in marketing materials promoting the company.

Instead, Paramount told its 2,700 investors, including Amish and Mennonite business owners from its home county, that the company faced a bright future as more low-income earners, immigrants and cryptocurrency users embraced its ATMs. Since its founding in 2012, “we have never missed our projections,” which called for continued growth, Paramount noted in an online appeal to investors.

Contrary to that rosy outlook, the company defaulted on $138 million in payments to its investors last month, and its suppliers started removing currency from Paramount machines.

As a result, ATMs for large Paramount clients including the Pennsylvania Turnpike and Redner’s Markets have been unable to dispense cash.

Matt Haverstick, a lawyer for the investors, said it’s not yet clear how many ATMs Paramount ran.

Under Heller, Paramount had told investors the company managed more than 25,000 ATMs, many of them acquired from smaller networks in other states.

But the number of Paramount ATMs was fewer than 10,000, Paramount vice president Leigh Danca testified Dec. 6 in a hearing before Lancaster County Common Pleas Court Judge Leonard G. Brown III.

Brown last month effectively removed Heller from Paramount’s management and put lawyers for the investors in control. Heller, who was well known in Lancaster, had recruited local investors to back his Prestige investment funds (which invested in Paramount’s ATMs), Bitcoin enterprises, a Lititz, Pennsylvania-based steakhouse, and marijuana, hunting gear and charitable projects.

At the hearing, Heller declined to testify, citing the Fifth Amendment right to avoid self-incrimination. Paramount CEO Randall Leaman also declined to testify. Heller’s Harrisburg-based lawyers, Heidi Freese and Barbara Zemlock, declined to comment after the hearing.

The judge ordered Paramount to pay $50,000 a day, starting Dec. 7, until it identifies all its ATMs to investors; and a total of $100,000 a day starting Dec. 14 if the company also fails to turn over transaction reports and other records to investors.

Besides the Paramount litigation, Heller faces lawsuits from banks, former business partners including ATM companies, and out-of-state investors in Paramount and other enterprises.

Haverstick said remaining Paramount employees are trying to collect the records requested by the judge and to restart what’s left of the company’s ATM network so any profits can help repay what investors are owed.

“We are going to stabilize the network,” Haverstick said Thursday, before meeting with FBI and SEC investigators.

The growth that wasn’t

“We cater mostly to the lower-income folks, one of the fastest-growing demographics in the U.S.,” including families on public assistance “who use ATMs as their bank branch,” according to a brochure and online materials promoting Paramount’s ATM business that was shared to local investors as recently as last spring.

“In the future you will see many new uses for ATMs,” including marketing, foreign-funds transfer and crypto investment, the promotion also said. Paramount even promised to compensate investors if ATM use fell below its ambitious targets.

Yet data for one of Paramount’s original customers, the Pennsylvania Turnpike Commission, showed a steep decline in ATM use in recent years, cutting into the agency’s profits, as well as the company’s.

Under the contract between the turnpike and Paramount, the company charged a $3.75 per transaction fee to visitors to 21 ATMs at the 17 Turnpike rest stops — of which $2 went to the turnpike commission. The rest covered Paramount’s costs and contributed to any company profits.

Paramount also gave the turnpike free ATMs for use by its employees at its Harrisburg-area headquarters and service building. And the turnpike got a cut of fees from ads run on the machines, though turnpike officials say the transaction fees were their main source of ATM income.

The turnpike collected $510,000 as its cut of Paramount’s ATM business in fiscal 2018, according to data provided by Don Klingensmith, assistant chief financial officer for procurement at the turnpike commission.

That fell to $129,000 during the fiscal year that ended June 30. ATM use dropped sharply during the initial COVID restrictions in March 2020 and fell again when the state closed its cash tollbooths and began collecting all tolls digitally later that year — part of a national trend toward digital payments. Use declined again last year.

The drop in ATM use as more people pay by smartphone and with other digital payment media is “a sign of the times,” Rick Dreher, the turnpike’s chief financial officer, said.

Local stores lose cash

Government records show many of Paramount’s clients were liquor stores, corner groceries, and other independent businesses or small chains.

One of the larger companies affected by the company’s recent troubles is Redner’s Markets, a Reading-based chain of 57 groceries and convenience stores in eastern Pennsylvania, Maryland, and southern Delaware, including in Bucks, Chester and Montgomery Counties.

Paramount ATMs at Redner’s “have been out of service for the better part of two weeks,” Redner’s spokesman Eric B. White said Monday. The company has been encouraging customers who need cash to request it at the register, using their bank cards.

“We hope they find a resolution,” he said.

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