CEO Blames Finance Chief for Benefits Provider's Collapse

Raleigh, N.C. — The owner of a company that administered payroll and benefits for about 100 small and mid-sized firms in the Triangle  said Thursday she had no clue the company was in deep financial trouble until weeks before she closed its doors.

"My life has been turned upside down," Suzanne Clifton told a bankruptcy administrator.

Clifton's firm, Castleton Group, went out of business suddenly in mid-December amid state and federal investigations into the company's finances.

The state Department of Insurance determined the company's liabilities exceeded its assets by $6 million and that at least $8 million in payroll taxes from client companies were never remitted to the Internal Revenue Service.

The closure left about 3,500 area employees, whose health benefits Castleton handled, without insurance coverage and the companies that contracted with Castleton on the hook for the unpaid taxes.

Clifton declared bankruptcy for the company in late December, and in the first hearing in Bankruptcy Court, she blamed Castleton's former chief financial officer, Jay McLamb, for the firm's troubles.

She acknowledged Castleton had experienced tax problems in the past, but she said she thought the company was profitable and running smoothly until McLamb told her otherwise on Nov. 16.

"I was numb," she said, calling herself a victim in the case.

McLamb didn't attend the hearing.

Bankruptcy trustee Richard Sparkman questioned Clifton about Castleton's accounting system, which he called "obtuse," and said the financial records were "deliberately structured to conceal rather than reveal."

A federal grand jury has seized many of Castleton's financial records, complicating the bankruptcy proceedings.

Clifton said she didn't know what happened to the money her clients paid for health insurance premiums.

"I am an honest individual," she said, eliciting laughter from former Castleton employees and clients – now creditors – at the hearing.

Some people who relied on Clifton for their jobs and their benefits administration said they no longer believe her.

"I feel that, yes, she lied to me. I have no doubt. Yes, she lied to me," former employee Jodi Cheek said.

Dr. Don Lane, owner of Lane and Associates dental centers, a former Castleton client, was visibly angry and frustrated in the courtroom. But he declined to comment after the hearing.

Cheek said Clifton assured employees that the company was fine in the weeks leading up to its closure. She also questioned the disappearance of the money paid by clients in those final weeks of 2007.

"To this day, we still have no idea where those funds were allocated," she said. "I think any business owner ... needs to bear the responsibility. There needs to be some accountability."