Former Image Entry Inc. VP Pleads Guilty to Securities and Wire Fraud Conspiracy, Tax Evasion
|U.S. Department of Justice May 15, 2009|
Michael Wayne Sulfridge, a resident of Union Grove, Alabama and former vice president of corporate finance at Image Entry, Inc. (Image Entry), pleaded guilty today to fraud and tax evasion charges stemming from the company’s 2001 acquisition by Sourcecorp, Inc. (Sourcecorp), Assistant Attorney of the Criminal Division Lanny A. Breuer, Acting Assistant Attorney General of the Tax Division John A. DiCicco and U.S. Attorney James T. Jacks of the Northern District of Texas announced.
Sulfridge, 44, pleaded guilty to a two-count criminal information charging him with conspiracy to commit wire fraud and securities fraud, as well as tax evasion.
According to the plea agreement and evidence presented during the plea hearing, Image Entry, of London, Kentucky, is a data processing company that operated nearly a dozen facilities located in the Southeastern and Midwestern United States. Sourcecorp is a consulting and information management corporation located in Dallas that purchased Image Entry in March 2001.
According to the plea agreement and evidence presented during the plea hearing, the terms of the purchase agreement provided that in addition to the $33 million paid at closing, an additional sum of approximately $11 million would be held back and paid during the three succeeding years if Image Entry met its earnings targets. The purchase agreement also provided for additional incentive payments of up to $25 million during the three years that would be calculated based on the amount by which those earnings targets were exceeded.
According to the plea agreement and evidence presented during the plea hearing, Sulfridge and others conspired to fraudulently inflate Image Entry earnings in order to fraudulently increase those annual incentive payments by Sourcecorp. The total cost of the acquisition by Sourcecorp amounted to approximately $68 million, including the incentive payments.
Also according to the plea agreement and evidence presented at today’s hearing, Sulfridge allegedly caused a tax loss of $190,111 when he acted to evade income taxes due on approximately $592,393 in bonus compensation he was paid based on the fraudulently inflated earnings. According to the information, Sulfridge failed to report that income on the annual joint individual income tax returns he filed with the Internal Revenue Service (IRS) for tax years 2001, 2002 and 2004, and in May 2005 Sulfridge allegedly submitted a materially false income tax return to the IRS for tax year 2003.
At sentencing, Sulfridge faces a maximum penalty of five years in prison on the conspiracy count and five years on the tax evasion count. Sulfridge also faces a maximum fine of $250,000 on the conspiracy count and a maximum fine of $100,000 on the tax evasion count. A sentencing date has not yet been scheduled.
The case is being prosecuted by William H. Stapleton Jr., of the Criminal Division’s Fraud Section, by James Etri of the U.S. Securities and Exchange Commission acting as a Special Attorney assigned to the Criminal Division, and by Jill M. Cassara of the Tax Division. The case is being investigated by the FBI and the IRS.