Criminal charges are possible as federal officials unwind the collapse of The Castleton Group, a bankrupt human resources firm that owes millions in taxes.

At a meeting of creditors Thursday, a trustee handling the case said financial and other records are subject to a federal grand jury subpoena. Richard D. Sparkman, the trustee, declined to say more.

"A fair inference from that is the U.S. attorney is concerned that some federal law may have been broken and a grand jury is investigating to see if there's enough to indict," said Press Millen, a partner at Womble Carlyle Sandridge & Rice in Raleigh, who is not involved in the Castleton case.

Castleton has admitted owing as much as $11.2 million in federal taxes that it was supposed to send to the Internal Revenue Service for clients. More than 100 small and midsize businesses and their 3,500 workers counted on Castleton, based in Raleigh, to manage payroll, insurance, retirement and other functions.

Those businesses, which originally paid Castleton the tax money, might be required to pay it again directly to the IRS, an accountant working with Sparkman said at the court proceeding.

An attorney assisting the trustee elaborated afterward. "The U.S. Attorney's Office has said that the employees likely will not have personal liability, but the companies likely will be on the hook," Joseph N. Callaway said in an interview.

That prospect doesn't sit well with Randy Roch, who owns Triangle Cable Splicing. "The thing that worries me is the tax implications," he said during a break Thursday. "I paid them."

Dozens of others affected by Castleton's demise showed up for court, listening to tedious questioning for more than two hours. Castleton filed for bankruptcy in December after the state Department of Insurance refused to award a license that it needed to operate, after disclosure of the back taxes and after Castleton abruptly ceased operations.

Clients were stunned. Castleton had maintained a reputation of strength and stability, even as problems mounted behind the scenes. At least twice during its 10-year existence, Castleton ran afoul of tax authorities, including the IRS.

But Suzanne Clifton, Castleton's founder and president, said Thursday that she was caught off guard by the problems that finally brought the company down. During the question-and-answer session, she blamed Jay McLamb, Castleton's former chief financial officer.

She said McLamb admitted Nov. 16 to not keeping tax payments current, a revelation that she said left her numb. She blamed him for financial records that Sparkman said seemed structured "to conceal rather than reveal" and for financial arrangements that, for instance, had Castleton paying Clifton's home mortgage.

"This was set up by Jay McLamb to my detriment," said Clifton, flanked by bankruptcy and criminal defense attorneys.

Clifton added that McLamb, who was terminated in November, chose to move into new offices -- which Sparkman called "palatial" -- weeks before the company filed for bankruptcy. Castleton took the fifth floor of a building on Glenwood Avenue in which Clifton is an investor. The rent was about $60,000 a month.

Attempts to reach Joseph B. Cheshire V, who is representing McLamb, were unsuccessful.

"I am an honest individual and had no idea it would turn out to be what it is," Clifton said of the company's failure. "Between the ... [Department of Insurance], the IRS and The News & Observer, my life has been turned upside down." Clifton blames the newspaper for reporting on Castleton's troubles.

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