The founder and chief executive officer of Image Entry Inc. pleaded guilty Tuesday for his role in inflating his earnings after his company was purchased by Dallas, Texas-based SourceCorp Inc.

Former London resident Bill D. Deaton, 62, who now lives in Ocala, Fla., entered the plea before U.S. Magistrate Judge Paul Stickney to one count of conspiracy to commit wire fraud. Sentencing is scheduled for July 2 in a Texas federal court.

Deaton faces a maximum penalty of five years in prison and a fine of $250,000.

In the sale of the London data processing company to SourceCorp in 2001, SourceCorp agreed to pay Deaton $32.8 million at closing, an additional $11 million during the next three years if Image Entry met its earnings targets and up to $25 million in three annual installments if the company exceeded its target earnings.

According to a press release from the U.S. Department of Justice, Deaton admitted he and others fraudulently inflated Image Entry’s reported earnings — and Deaton's earn-out payments — by failing to report operating expenses incurred by Image Entry.

Instead, Deaton said he and others diverted the operating expenses for payment by using funds drawn from non-Image Entry accounts under Deaton’s control. According to the plea agreement, up to $971,036 in Image Entry expenses were diverted, inflating incentive payments Deaton received by $1.9 million.

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 the U.S. Department of Commerce, National Oceanic and Atmospheric Administration, according to the release. Deaton admitted that Image Entry continued to recognize revenues as if the quality control procedures were still being performed.

Also charged was Image Entry Vice President of Corporate Finance Michael Sulfridge.

Deaton admitted he paid Sulfridge additional compensation and bonuses for his help in signing false certifications sent 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.

Sulfridge pleaded guilty last year to one count of conspiracy to commit wire fraud and securities fraud, and one count of tax evasion.

He has not been sentenced.

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