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Big employer to plead guilty to fraud scheme

A businessman who once employed hundreds of people in eastern and southern Kentucky will plead guilty to fraud involving millions of dollars, according to court documents.

Bill D. Deaton, founder of Image Entry Inc., will admit taking part in a scheme to inflate Image Entry's earnings so he could make more money after he sold it to a Texas company, court documents say.

Deaton will plead guilty to a charge of conspiracy to commit wire fraud.

Deaton has not entered a plea but anticipates he will at his initial court appearance, according to a motion in federal court in Dallas. That hearing could be scheduled as early as next week.

Deaton's attorney, Peter G. Neiman of New York, said Deaton has already repaid millions to the Texas company and will face the criminal charge squarely.

"Mr. Deaton is a good man, who has created tens of thousands of jobs and touched the lives of many in his community," Neiman said. "When questions were first raised about these accounting issues five years ago, Mr. Deaton repaid the entire amount at issue. Mr. Deaton intends to approach these charges in the same way: by forthrightly accepting responsibility for what he did."

Deaton, 62, an Owsley County native who has property in London but now lives in Ocala, Fla., founded Image Entry in the early 1990s and built it to employ people at offices in several towns in southern and eastern Kentucky.

Image Entry provided data-processing services for government agencies and businesses.

U.S. Rep. Harold "Hal" Rogers is credited with helping the company get federal work, including a contract for data entry of weather records. Rogers also has helped with contracts for Senture, a call center in London that is a significant employer; it is operated by members of Deaton's family.

Deaton sold Image Entry to Dallas-based SourceCorp for $32.8 million in March 2001, but he agreed to stay on for three years and run Image Entry as a subsidiary.

Under the deal, Deaton was eligible to get an additional $11 million if Image Entry achieved certain earnings levels, and up to $25 million more if the company exceeded earnings targets by large enough margins, according to court documents.

Deaton took part in a scheme to conceal expenses and inflate reported earnings in an attempt to get the $25 million, according to court documents.

For instance, he paid some expenses from other companies he owned, Trinity Group LLC and Cognitive Software Solutions Inc., court documents say.

Deaton also told Image Entry managers to have employees stop performing some verification work on the weather-data contract but to continue billing for the work, thereby boosting revenue, according to a court document.

Deaton sent false information on Image Entry's earnings to SourceCorp. That is the basis for the wire-fraud charge.

Deaton got the $25 million but later paid it back to SourceCorp after his actions came under scrutiny. He also paid the Texas company $5 million to cover the costs of its internal investigation, and he paid the U.S. Securities and Exchange Commission $240,000, according to court documents.

As a result, prosecutors have agreed there is no need for further fines or restitution in the criminal case against Deaton, a court document says.

It's unclear how much jail time, if any, Deaton will receive.

The maximum penalty would be five years.

However, the sentence will be based in part on how much SourceCorp lost because of the fraud, and court documents say prosecutors and Deaton's attorney haven't agreed on that amount.

One reason is that Deaton argues the amount SourceCorp lost should be offset by benefits the company got from his actions.

Both sides have agreed the amount involved in the fraud was not more than $1.8 million. But Deaton could argue the company didn't lose anything, and that probation would be justified.

A former Image Entry vice president, Michael Wayne Sulfridge, pleaded guilty last year to taking part in the conspiracy to boost the company's earnings so Deaton could get more money.

Sulfridge received nearly $600,000 for helping in the fraud, the government said at the time.

Deaton paid Sulfridge much of that off Image Entry's books, court documents say.

Sulfridge also faces up to five years in prison but has not been sentenced.

Sulfridge's attorney, Kent Wicker, declined comment Friday on whether Sulfridge cooperated in the investigation of Deaton.

The charges against Deaton say he and Sulfridge took part in the scheme with others.