Castleton may face scrutiny of SBI

Wake DA asks for an investigation of the human-resource company, which failed to account for $8 million

Wake County's district attorney has asked state law enforcement officials to begin an investigation of financial irregularities at a bankrupt Raleigh company that provided human-resource services to more than 100 employers.

Wake District Attorney Colon Willoughby said Friday that he asked the State Bureau of Investigation to start a probe of The Castleton Group at the request of Wake Superior Court Judge Donald W. Stephens.

Stephens was the judge in an appeal that Castleton filed after state insurance regulators ordered the company to cease operations. On Dec. 12, Stephens wrote to Willoughby, saying that Castleton's lawyers couldn't account for as much as $8 million.

"It has come to my attention that the company's Chief Financial Officer and Chief Operating Officer, Mr. Jay McLamb, has admitted the non-payment of federal withholding taxes," Stephens' letter reads, "even though the company's books and records show that the money was withheld and paid."

Stephens declined to comment further Friday.

Getting the SBI's financial-crimes unit involved ratchets up the pressure on Castleton and its sole shareholder and founder, Suzanne Clifton, said Tony Riddick, a deputy commissioner at the state Department of Insurance. Clifton could not be reached for comment Friday.

Riddick's department oversaw a review of Castleton's finances and denied the company a license it was required to have under a 2005 state law.

The SBI has yet to contact the Department of Insurance, Riddick said. But once it does, he said, "we'll cooperate with them any way we can."

Willoughby said he requested the SBI investigation in writing about a week ago and isn't sure when he will receive a report. Based on the findings, he said, "we'll determine what, if any, action is appropriate."

In a Nov. 28 hearing with the Department of Insurance, Castleton officials blamed McLamb for the company's financial difficulties. McLamb and the company's controller were terminated Nov. 16.

McLamb's lawyer, Joseph B. Cheshire V, said Friday that "no money flowed from that company to any individual or entity in any improper or illegal way. Some very difficult and unfortunate decisions were made in an attempt to keep the company solvent. Obviously, it failed."

State insurance regulators determined that Castleton was insolvent and on Nov. 29 ordered the company to shut down.

Castleton hasn't had enough cash to pay its annual expenses for the past three years, according to an independent audit on which the Department of Insurance based its findings. The company made up the shortfall with ever larger bank overdrafts and by borrowing money.

In 2006, Castleton generated a $1.2 million loss, the audit shows. Without accounting breaks, the company would have ended 2004 and 2005 in the red, said Ron Ennis, manager of the Department of Insurance division that regulates businesses that help provide medical coverage. "This company was in a hazardous financial condition," he said. "It was never good and getting worse."

Castleton initially appealed the regulators' order.

But on Dec. 18, Clifton surprised clients and employees by shutting the business down. Four days later, Castleton filed for bankruptcy. That left Castleton's clients scrambling to find replacement health coverage and other employee benefits.

(Staff writer Jonathan B. Cox contributed to this report.)