Bill D. Deaton, Conspiracy to Commit Wire Fraud, Texas 2010

Former CEO Bill D. Deaton, 62, of Ocala, Fla., pleaded guilty today in a conspiracy to inflate his earnings resulting from his company's 2001 acquisition by SourceCorp Inc., announced U.S. Attorney James T. Jacks of the Northern District of Texas.

The purchase agreement between Image Entry and SourceCorp contained three elements: approximately $32.8 million paid to Deaton at closing; an additional approximately $11 million would be held back and paid during the three succeeding years if Image Entry met its earnings targets; and an additional amount, referred to as an 'earn out,' of up to $25 million to be paid in three annual installments if Image Entry exceeded its target earnings.

According to court documents and evidence presented at the hearing, Deaton admitted that he and others conspired to fraudulently inflate Image Entry's reported earnings, and subsequently Deaton's earn out payments, by failing to report and recognize operating expenses incurred by Image Entry. Instead, Deaton admitted that he and his co-conspirators diverted the operating expenses for payment by Deaton using funds drawn from non-Image Entry accounts under Deaton's control.

Deaton also admitted that he and others fraudulently inflated Image Entry's reported earnings, and thereby Deaton's earn out payment, by causing Image Entry employees to limit or entirely omit certain quality control procedures for a customer, the U.S. Department of Commerce, National Oceanic and Atmospheric Administration. Deaton admitted that Image Entry continued to recognize revenues as if the quality control procedures were still being performed.

According to court documents, Michael Wayne Sulfridge was Image Entry's former vice-president of corporate finance and reported directly to Deaton. Deaton admitted that he paid Sulfridge additional compensation and bonuses, beyond his established salary, from Deaton's personally-owned funds drawn from non-Image Entry accounts.

Deaton admitted that he and Sulfridge signed false certifications and provided them to SourceCorp, which falsely represented that Image Entry's financial statements and the results of its operations and cash flows were presented fairly and in accordance with generally accepted accounting principles.

Deaton faces a maximum penalty of five years in prison and a fine of $250,000. Sentencing has been scheduled for July 2, 2010.

Source: https://www.justice.gov/archives/opa/pr/former-owner-and-ceo-kentucky-business-pleads-guilty-role-conspiracy-inflate-personal