For Raleigh’s business community, December marks a dubious anniversary: Two years ago, this month, the human-relations outsourcing firm The Castleton Group closed shop. The move followed a ruling by the state Department of Insurance that declared the company insolvent.
This wasn’t just any company, either. In 2007, The Castleton Group had landed on Inc magazine’s list of the 5,000 fastest-growing private companies in the U.S. That same year, it was also ranked the number one woman-owned business by Triangle Business Journal. But then, everything unraveled. Within months of closing shop, James McLamb, the company’s finance chief, was charged with tax conspiracy. According to authorities, from January, 2005 to January, 2008, McLamb collected and withheld federal taxes from individual employers on behalf of employees, then prepared false and fraudulent documents to mislead the IRS.
The fall-out? Devastating. The state Department of Insurance later determined The Castleton Group’s liabilities exceeded its assets by $6 million. Meanwhile, at least $8 million in payroll taxes from client companies were never paid to the IRS. Translated into human terms: Approximately, 3,500 employees were left without health insurance coverage, and the companies who used Castleton’s services were left on the hook for unpaid taxes.
A few months ago, McLamb was finally sentenced to 2.5 years in federal prison and $8 million in restitution. McLamb may be behind bars, but questions remain — questions that demand answers. How is that Castleton’s owner, Suzanne Clifton — an entrepreneur who’d been named Enterprising Woman of the Year in 2007 — had no knowledge of this massive defalcation taking place? (Sidenote: Clifton has been sued by the company’s bankruptcy trustee who’s seeking to repay missing creditors by recouping money: $3 million that she reportedly withdrew as the firm fell into bankruptcy.)
I’m not saying Clifton knew anything about McLamb’s actions. But if you’re the CEO and president of a company don’t you at least have an ethical responsibility to have your finger on the pulse of your own company? With the two-year anniversary of The Castleton Group’s closing upon us, a moment of reflection wouldn’t hurt.