Castleton CEO denies fraud
01/30/2009 12:00 AM
09/22/2009 7:44 AM
The founder and CEO of the insolvent Castleton Group contends in court documents that she did nothing wrong and blames the company's tax woes on its former chief financial officer.
The position Suzanne Clifton took this week in defense of a lawsuit filed against her by Castleton's bankruptcy trustee is consistent with what she has said publicly since the Raleigh company shuts its doors in December 2007. The business managed payroll, benefits and other human-resources tasks for more than 100 small and medium businesses -- and left them in the lurch when it went out of business.
The lawsuit was filed in November by Richard D. Sparkman, who was assigned to oversee Castleton's liquidation. It alleges she drained at least $3.09 million from the business before its bankruptcy and seeks to recover the funds. It also contends she continued signing up customers even after it was apparent Castleton's financial situation was hopeless.
Castleton sought bankruptcy protection after state regulators declined to award it the license needed to remain in business, and after disclosures that the company owed more than $8 million in back income taxes to the IRS.
Clifton's filing denies any involvement in a fraudulent scheme and argues the lawsuit should be dismissed. It also contends she at all times acted "in good faith and with no knowledge of wrongdoing" by James McLamb, former chief financial officer.
With regard to the income tax the company owes, for example, "Clifton states that she was unaware, and could not have reasonably known that the taxes were not being paid." Instead, McLamb "had direct oversight for the payment of taxes and ... he fraudulently failed to pay said taxes and affirmatively concealed the non-payment from Clifton."
Last summer, McLamb pleaded guilty to conspiring to defraud the U.S. government by falsifying forms filed with the IRS. His plea was part of an agreement with prosecutors to cooperate with a separate federal investigation into Castleton's demise.
McLamb's sentencing, which was scheduled for next week, has been postponed until April.
The postponement was requested by McLamb's attorney, Joseph B. Cheshire V, who told the court that because McLamb was still cooperating with the federal investigation the government couldn't make a recommendation about his sentencing.
Castleton's bankruptcy filing blindsided its customers. Clifton had all the trappings of success -- a Mercedes convertible and, along with her husband, 6,000-plus-square-foot homes in Florida and Wrightsville Beach -- and the company had received accolades for its rapid expansion.
After closing, Castleton infuriated clients by failing to respond to questions such as the status of employees' health insurance. Similarly, Clifton's filing is parsimonious with information.
In response to the lawsuit's "factual allegation" that since at least 2001 Clifton was the majority owner, chairwoman of the board of directors and CEO of the now-bankrupt companies [Castleton Group, Castleton Associates and Castleton Affiliates], her filing states: "Clifton believes that, at certain times she has been the majority shareholder and chairman of the boards of the debtors, but would require access to the debtors' records for verification of that fact."
The company's papers and electronic records are in the possession of the bankruptcy trustee.
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