Two software company executives resigned and were charged with grossly overstating their company’s revenue to attract $50 million in private investment. Co-founders Paul Thomas Johnston, CEO of Entellium Corp., and CFO Parrish L. Jones resigned September 30 and were charged with one count of wire fraud in U.S. District Court. Wire fraud is punishable by a maximum 20 years in prison and $250,000 fine.
The fraud was discovered in September when a worker found financial “cooked books” as she was cleaning out a desk. Johnston wrote in his resignation e-mail that he was “deeply shamed and sorry” for what he had done. Prosecutors don’t know where all of the money went, but they believe the bulk of it was invested back into the company. On Friday, Entellium laid off about 40 of its 60 employees in Seattle. It’s unknown what will happen to the 75 workers based in Malaysia.
The privately held Entellium makes Web-based CRM software that helps businesses track sales and customer information. Most of its clients are U.S.-based small-to-mid-size manufacturing, construction and technology companies.
Johnston and Jones founded Entellium in 2004 and immediately began overstating revenues by $400,000 a month. Since 2006, the pair stated $15.5 million in revenue, when in fact the company earned less than $4 million. Johnston and Jones inflated the revenue statements to attract more than $50 million in venture capital.
“We have both made a grave mistake (in) misrepresenting our revenue to the board,” Johnston wrote to the company’s directors in his resignation e-mail. “Looking back at the time we thought we would be able to right the wrong and correct our representation, but we have not been able to do this.” Johnston added, “Clearly this is devastating news and something we both regret and are deeply sorry for. Our families are not aware of this and we are telling them now.”
What everyone is wondering: With $50 million invested, why was there never an audit?
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October 20th, 2008 at 8:58 pm
Ex- Entellium KL Staff – we got laid off no pay no tax and epf paid for the last 6 months…..