State and federal authorities are investigating Network Technologies Group Inc., a Baltimore company that folded this month after company officials discovered an accounting scheme, NTG's interim chief executive, John M. Collard, said yesterday.

About 125 workers lost their jobs when Network Technologies Group closed July 12. Collard said NTG had been misbooking invoices and creating phony ones to inflate accounts receivable that served as collateral for its credit line with Mercantile‑Safe Deposit and Trust Co. By doing that, he said, the company could borrow more money.

When the company closed, workers lost their last three weeks' pay. Richard Panzer, a former project manager at NTG, said money was not deposited into employees' 401(k) accounts and that employees did not receive health benefits for the past several weeks.

"Now we're being told that we have to carry the weight of this fallout," Panzer said.

A source close to the company said the FBI and the state attorney general's criminal investigation division have begun an investigation.

The FBI and the U.S. attorney's office would neither confirm nor deny that a federal investigation is under way. The state's attorney general's office also declined to comment.

Collard, a turnaround specialist who heads Strategic Management Partners Inc. in Annapolis and took over NTG on July 1, confirmed that before he arrived at the company, NTG deducted money from employees' paychecks that was supposed to go into 401(k)s but never sent the money to the firm handling the 401(k) accounts.

He also said that checks NTG had written for employee health insurance for last month bounced, so employees were not covered last month or this month unless they paid for it themselves. NTG's taxes were handled properly because the company hired a payroll firm to do that work, Collard said.

At the end of last year, NTG had created bogus invoices for about $2 million, Collard said. It also did not put accounts payable invoices totaling $2 million into the accounting system, overstating profits a total of $4 million, he said.

Weekend bookkeeping

Many of the adjustments and phony invoices were done over weekends and then posted the following Monday morning, Collard said.

Collard said he received a subpoena for all of the company's records.

Edwin Brake, managing director of Ellin & Tucker, Chartered in Baltimore, the accounting firm that NTG hired, said he was told he would also be getting a subpoena but that he hadn't received one as of yesterday.

Brake said Ellin & Tucker was not aware of accounting irregularities before Collard joined NTG. He said his firm was called in by Collard to help assess the damage.

Ellin & Tucker started representing NTG in 2000, Brake said. The audit for last year wasn't completed because NTG's management never got back to the accounting firm with certain information.

"From my standpoint, our audit worked," Brake said. "It was an incomplete audit, but the steps you go through, we went through and couldn't get cooperation."

Panzer, the former project manager, said he worked at NTG for 2 1/2 years and that many workers suspected the company was in trouble.

"A lot of us had been tossing around a company poll to see how long it was until they went bankrupt," he said.

Optimism continued

Still, some employees were optimistic because the company was landing multi million‑dollar projects, he said.

"We all felt it, but then we were all being told by the next people up that there were problems but we were fixing them," Panzer said.

Three weeks before the company folded, Panzer said, some higher ­ranking employees were told to buy cellular phones or they would be demoted. Workers were told that the company would reimburse them for the phones, but the company never did that, and some employees are left with one‑year cell phone contracts, he said.

Panzer said employees were also told that an influx of investor money was coming in the spring to help the company. NTG's investors include Abell Venture Fund and Spring Capital Partners LP, both of Baltimore, and Smith Whiley & Co., a Connecticut ­based investment company.

Dawn Russell, whose husband worked at NTG for several years, said she and her husband suspected that the company had problems. What has happened has been devastating for her, she said, especially because her son is scheduled to undergo surgery next week.

"Somebody there had to have known what was going on with the medical benefits," she said.

Sun staff researcher Jean Packard contributed to this article.