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Suit: HR firm was running on empty

Suzanne Clifton convinced lots of folks that she was running a successful company. More than 100 businesses counted on The Castleton Group Inc. to pay their taxes and handle other human-resources matters. Several magazines gave her awards. One published tips from her under the headline “Winning Ideas from Winning Women.” In 2007, the company landed on Inc. magazine’s list of the 5,000 fastest-growing private companies in the U.S. by boosting its top line nearly 90% from 2003 to 2006, when it grossed $24 million.

But Raleigh-based Castleton was living on borrowed time and stolen money, according to a recent lawsuit. By the end of 2007, it would file for Chapter 7 bankruptcy, having misappropriated more than $7 million of client money intended to pay federal taxes.

Much of the money paid for Clifton’s “extravagant lifestyle,” according to the lawsuit filed in November by bankruptcy trustee Richard Sparkman. He says Clifton illegally took at least $3 million out of the company in the two years before the bankruptcy filing. Castleton, the suit says, has been insolvent for years. “At the very least, as of January 1, 2004, CGI’s financial condition was hopeless and the company had no prospect of surviving and continuing as a going concern.”

Despite that, it kept signing up customers. “Suzanne Clifton was providing assurances to Castleton clients right up to the very end that everything was going to be fine and they should keep sending in money,” says Chris Graebe, a Raleigh lawyer representing four former Castleton clients.

Sparkman’s suit isn’t unusual in bankruptcy cases, says Stephani Humrickhouse, Clifton’s attorney, and she disputes its allegations. Clifton was unaware that the company was in trouble until she heard about its Internal Revenue Service liability from then-Chief Financial Officer James McLamb Jr. in November 2007. “Mrs. Clifton had absolutely no fraudulent intent whatsoever,” the lawyer says, “and was basically defrauded by her CFO.” In June, McLamb pleaded guilty to conspiring to defraud the U.S. government by falsifying forms filed with the IRS. He’s cooperating with prosecutors.

The full financial effect on Castleton clients remains unknown, Graebe says. Many scrambled to find replacements after the company went under and could face IRS problems of their own. “Castleton’s failure was devastating to all the companies that trusted it to perform the services it was hired to perform.”

SANFORDWyeth Pharmaceuticals will eliminate 124 jobs at its plant here. The layoffs, about 10% of the factory’s work force, are part of the Madison, N.J.-based drug maker’s effort to cut 6% of its U.S. jobs.

ROXBOROGeorgia-Pacific laid off about 120 at its plant, which makes wood beams for residential construction. The layoffs constituted about 60% of the Atlanta-based company’s local work force.

RESEARCH TRIANGLE PARKIBM dismissed 35 workers at its Research Triangle Park campus, where it employs about 11,000. In October, the Armonk, N.Y.-based computer-services giant let go approximately 100 local contract workers.

MORRISVILLE — Atlanta-based Delta Air Lines will begin five weekly direct flights between Raleigh-Durham International Airport and Paris in June. It will be the airport’s second trans-Atlantic destination. American Airlines has daily flights to London.

RESEARCH TRIANGLE PARK — British drug maker GlaxoSmithKline designated its campus here as its U.S. headquarters. The location had shared the designation with Philadelphia. The move came as GSK announced it would cut 1,000 U.S. sales jobs by the end of 2008. It didn’t say how many would come from RTP, where it employs about 5,000.

DURHAM — The state Department of Labor fined Duke University $35,000 for nine safety violations related to an explosion in a steam plant that killed a worker in May. Violations included failing to provide employees with operating instructions, obstructing paths to the mechanical room’s two exits and the lack of procedures to prevent machinery from being started unexpectedly during maintenance.

MORRISVILLEDigitalsmiths, which designs video search engines for the entertainment industry, raised $12 million in a second round of venture financing. The 10-year-old company plans to double its 35-member staff. Aurora Funds in Durham was among the investors.

RALEIGHFirst Citizens BancShares wants to open its first branch in Washington, D.C., in the second quarter. It has been in northern Virginia and Maryland since 2005 and has 353 branches in five states.

RESEARCH TRIANGLE PARKNortel Networks plans to cut 1,300 of its 31,000 jobs worldwide during the next year to reduce costs. The Canadian maker of telecommunications equipment wouldn’t say how many cuts would come from its campus here, where it employs about 2,200.

RALEIGHOptimal Technologies laid off 35 of its 120 employees, delaying plans to grow to at least 325 employees. The company, which makes software that helps manage utilities, blamed tight global credit.

RESEARCH TRIANGLE PARKHatteras Networks laid off 20 employees, leaving it with about 60. The communications-equipment maker blamed the slowing economy.