FORMER SOFTWARE EXECUTIVES CHARGED WITH WIRE FRAUD FOR LYING TO INVESTORS ABOUT REVENUE
Two Entellium Executives Resigned Following Discovery of False Revenue Statements
Two former executives of Entellium Corporation were charged today with Wire Fraud in U.S. District Court in Seattle. PAUL THOMAS JOHNSTON, 40, of Mercer Island, Washington and PARRISH L. JONES, 39, of Seattle, Washington, were arrested last night and will make their initial appearances in U.S. District Court today at 2:30. JOHNSTON was the former Chief Executive Officer (CEO) of Entellium. JONES was the former Chief Financial Officer (CFO) of the company.
Entellium is a privately held Seattle corporation which sells customer relationship management software. According to the criminal complaint sworn under oath by an FBI agent, JOHNSTON and JONES devised a scheme to defraud investors in the company by representing that company revenues far exceeded the actual figures. The misrepresentations were first uncovered in late September 2008, when a human resources employee was cleaning out the desk of a former Vice President of Sales for Entellium. The human resources employee discovered “board books” which contained financial information that had been presented to the Entellium board of directors. When the company comptroller reviewed the board books she discovered that the company revenues had been grossly inflated. The board was told that in 2006 the company had revenue of nearly $4 million when in fact if was just $582,789. The stated revenue figure for 2007 was $6.2 million, when in fact it was $1.4 million and in 2008 the stated revenue was $5.2 million when in fact it was only $1.7 million. The Entellium legal counsel reported the matter to law enforcement.
The false revenue numbers were allegedly used by JOHNSTON and JONES to attract approximately $50 million in private investment, including over $19 million from Ignition, a Bellevue Washington venture capital firm. Two Ignition partners served on the board of Entellium and told investigators that they would not have made such a significant investment had they been aware of the accurate revenue figures. In April 2008, Ignition wired $2 million into Entellium’s bank account based on fraudulent revenue figures presented to Ignition’s partners.
“Truthful accounting and transparency are critical to our financial systems,” said U.S. Attorney Jeffrey C. Sullivan. “I want to commend Entellium for contacting law enforcement when it became aware of inflated revenue claims made by company executives. Corporations are on the front line in rooting out fraud, and we need and expect them to come forward.”
Wire Fraud is punishable by up to 20 years in prison and a $250,000 fine.
The charges contained in the complaint are only allegations. A person is presumed innocent unless and until he or she is proven guilty beyond a reasonable doubt in a court of law.
The case is being investigated by the FBI. The case is being prosecuted by Assistant United States Attorney Carl Blackstone who leads the U.S. Attorney’s Office Complex Crimes Section.
For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110.