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Court documents: London businessman was part of conspiracy

The former chief executive of a company headquartered in London conspired to inflate the company's earnings so he could get more money when he sold it, federal court documents say.

Bill D. Deaton, founder and former CEO of Image Entry Inc., has not been charged in the case. However, a former company vice president has pleaded guilty as part of an active criminal investigation.

Michael Wayne Sulfridge, the vice president, admitted that he falsified reports to make it look as if Image Entry had higher earnings and lower expenses than it really did.

That fraud helped Image Entry's CEO earn millions of dollars in bonuses in addition to the $33 million he got for selling Image Entry in 2001, according to court documents.

Sulfridge, 44, who now lives in Union Grove, Ala., pleaded guilty Friday to conspiracy to commit wire fraud and securities fraud and to evading federal income taxes, according to the U.S. Department of Justice.

The document charging Sulfridge said that Image Entry's CEO took part in the conspiracy. The document did not name Deaton.

However, records in a separate federal securities complaint said Deaton was Image Entry's CEO during most of the same period as the conspiracy described in the charges against Sulfridge.

Deaton, who is in his early 60s and lives in Ocala, Fla., and his attorney from the securities case were not available for comment Monday. No one returned a telephone message left at a number listed to Deaton in Ocala.

Ian McCabe, a spokesman for the Department of Justice, said the investigation in the criminal case is continuing.

Deaton, an Owsley County native and University of Kentucky graduate, started Image Entry in 1992. The company provided data-processing services for government agencies and private businesses.

At one point, Image Entry had offices in more than half a dozen towns in Southern and Eastern Kentucky, providing hundreds of jobs.

U.S. Rep. Harold "Hal" Rogers was credited with helping the company get federal contracts — such as work to copy federal weather data — that helped Image Entry to grow.

Deaton later helped found Senture, a company in London that provides call-center and other services.

Senture, headed by Deaton's son, also has gotten work that was financed through Rogers' efforts.

Members of the Deaton family have contributed to Rogers' campaigns.

Deaton sold Image Entry to Dallas-based Sourcecorp in March 2001, but he stayed on as CEO for three years. The criminal investigation arose from that sale.

Deaton got about $33 million for his company when the sale closed. However, he was eligible to get an additional $11 million over three years for meeting certain earnings targets, plus as much as $25 million more if Image Entry exceeded earnings targets by large enough margins, according to court documents.

That $25 million, which Deaton received, was called the "earn-out" money.

Sulfridge, who was vice president of corporate finance at Image Entry, admitted that he, the CEO and other company employees conspired to inflate Image Entry's earnings to increase the amount of money the CEO could get under the earn-out clause.

They did that by various means, according to the charges against Sulfridge and other court documents. One tactic was to pay some of Image Entry's expenses through other Deaton companies, for instance; another was to count income from a government contract before the company got the contract.

In another example, Sulfridge and Deaton told Image Entry employees to stop performing some verification work on contracts but continue billing the agencies as if the work had been done, according to a court document.

Sulfridge and the CEO sent false information on Image Entry's earnings to Sourcecorp, according to the charges against Sulfridge.

The CEO paid Sulfridge extra for the "creative accounting" that helped the CEO get more money, according to the charges.

Sourcecorp ultimately paid $68 million for Image Entry, and Sulfridge got $592,393 in bonus money for helping to cook the books, according to a news release.

The alleged fraud involving the Image Entry sale has been the subject of lawsuits and earlier enforcement actions by the Securities and Exchange Commission.

Deaton repaid the $25 million, plus $5 million in expenses to Sourcecorp and a $240,000 fine to the government, according to SEC documents.

Sulfridge faces up to five years in prison when he is sentenced Aug. 14.