Sommet: Things fall apart

Company founder Brian Whitfield faced claims of impropriety in an earlier venture. Past as prologue?

Published July 11, 2010 by E. Thomas Wood

Last week’s raid by federal agents on the offices of Sommet Group, along with a government claim that Managing Partner Brian Whitfield has engaged in “ongoing criminal activity,” may have surprised those who knew Sommet mainly as the name that used to be on Nashville’s downtown arena.

It may have surprised acquaintances who knew Whitfield as an active parishioner at Franklin’s Fourth Avenue Church of Christ.

But it cannot have come as a total shock to Nashville investors Fred Goad, Jim Kever and J. Edward Pearson. Seven years ago, they accused Whitfield of engaging in “fraudulent, inappropriate and racketeering activities” as CEO of DigiScript Inc., a Franklin-based startup technology company.

Shades of Stokes

Agents of the Federal Bureau of Investigation and the Internal Revenue Service’s Criminal Investigation Division showed up at the Cool Springs headquarters of business-administration outsourcing company Sommet Tuesday morning with a search warrant, taking away papers and electronic data.

In an affidavit unsealed after the raid, IRS Agent J. Ken Runkle said that Sommet — “principally” through Whitfield — took in funds from business clients “by representing that it would disburse that money in proper amounts for the clients’ taxes, payroll checks, health-insurance plan, retirement plan, and other obligations.”

Instead, Runkle said, Sommet’s recent patterns of nonpayment or late payment of bills, “dwindling account balances,” and “a growing number of resignations by high-ranking executives” made clear that “client money was fraudulently misdirected and misappropriated, and that material facts
regarding clients’ employee- and health-benefit programs were concealed.”

The affidavit said Whitfield “routinely engaged in financial transactions with client money, knowing that that money was procured, in part, from his fraudulent misrepresentations.” It says Whitfield’s dealings often involved “amounts well in excess of $10,000.”

The authorities are relying in part on what appears to be whistleblower testimony from a recently departed senior employee of Sommet. The version of the affidavit released to the public was redacted to hide the identity of this informant, who gave investigators a detailed account of alleged irregularities at Sommet.

The document says the U.S. Department of Labor began investigating Sommet’s handling of employee benefit issues in January 2010. By mid-June, DOL had found that “the amount of Sommet’s unpaid medical and pharmacy claims had increased to $2.1 million.” The filing does not spell out how much money may be missing in total.

As of late last week, nobody from Sommet had been charged with any crime, although the affidavit specifies that Whitfield and others are suspected of five federal offenses: wire fraud, money laundering, theft or embezzlement from employee benefit plans, theft or embezzlement in connection with health care, and false statements relating to health care matters.

Those suspicions, if borne out in court, will represent the second meltdown in the past four years of a Middle Tennessee firm involved in managing employee benefits. In 2006, politically ambitious Dickson entrepreneur Barry R. Stokes and his company, 1Point Solutions, were plunged into litigation and bankruptcy after clients learned Stokes had misappropriated what turned out to be more than $19 million from the retirement savings of thousands of people.

Stokes is now serving 12 and a half years in a federal penitentiary, after pleading guilty to 78 counts of embezzlement, mail fraud, money laundering and bankruptcy fraud.

Alleged pyramid scheme, and more

Accusations of shady dealings by an allegedly crooked CEO are a familiar refrain among some members of the local business community who knew Whitfield before he created Sommet.

Fred Goad and Jim Kever were among the main shareholders in DigiScript, while Eddie Pearson took over there as CEO when Whitfield, its founding CEO, resigned in the spring of 2003.

Soon after Whitfield departed, Goad, Kever and Pearson discovered troubling evidence about how he had run the company. In legal filings, DigiScript accused Whitfield of numerous underhanded acts, including:

Creating $640,000 worth of false invoices for work that had not been contracted, and then operating “a pyramid scheme in which he sold fake accounts receivables” to a receivables-financing (or “factoring”) firm;
Selling $371,000 worth of company stock to a group of physicians, and then having official records “revised to reflect a sale of Whitfield’s own common stock,” with the sale’s proceeds going to him personally;
Maintaining a secret company bank account, whose statements were mailed to Whitfield’s home, as part of a scheme to make it look as though he had been loaning DigiScript his personal funds “when in actuality, on several occasions, he loaned the company its own money and then purported to receive ‘repayment’ from the company for such loans by using DigiScript funds for his own personal use,” and finally:
Setting up a competing business while still employed at DigiScript that relied on the company’s proprietary technology, having DigiScript fund a trip to Europe where Whitfield lined up his new venture’s first client, and even using presentation slides prepared for DigiScript’s sales department when pitching would-be clients of the competing company.

DigiScript lodged those assertions in a counterclaim after Whitfield sued the company in Nashville’s U.S. District Court for wrongful termination as a result of religious discrimination.

Whitfield and two other senior executives at the company were members of Fourth Avenue Church of Christ, one of the oldest Church of Christ congregations in Middle Tennessee. The lawsuit claimed another DigiScript exec had routinely referred to employees affiliated with the church as “the church guys,” “Bible-bangers” and “C of C’ers.” It recounted an episode in which Kever prohibited Whitfield from letting a Christian organization use DigiScript’s remote-meeting technology for free and questioned him about holding Bible studies at the office and allowing church elders to use it for meetings.

Whitfield said Kever told him that he had “brought problems to DigiScript because of all the Church of Christ people he had hired, and that as CEO he shouldn’t allow all of this religious stuff to be happening at work.”

In March 2004, Judge Todd Campbell granted DigiScript a temporary restraining order that banned Whitfield from continuing to use the company’s intellectual property for his competing enterprise. The judge found that DigiScript had “demonstrated a strong or substantial likelihood of success on the merits” in its claims involving alleged misappropriation of company technology.

The rest of the claims between the company and Whitfield were resolved in a confidential settlement in late 2004. By then, Whitfield had launched the employee leasing business now known as the Sommet Group. The litigation received almost no media coverage while it was going on, and it is unclear how much any Sommet clients have ever heard about the allegations made in it.

The City Paper last week tried to reach Goad, Kever, Pearson and other individuals who had been involved with DigiScript. None responded to requests for comment.

Numerous attempts to reach Whitfield have also been unsuccessful, and at press time he and Sommet had not publicly responded to the action by federal authorities.