Entellium startup executives charged with fraud, enter no plea

Two former executives of Seattle-based Entellium Corp. appeared in court last week and did not enter pleas on charges of wire fraud.

The U.S. District Court in Seattle earlier this month filed charges against Paul Johnston, the former CEO of the company, and Parrish Jones, the former CFO, alleging the two executives committed fraud to attract venture funding.

Entellium, which develops online customer relationship management software, has received venture financing totaling nearly $50 million since its formation in 2000. Nearly $19 million of that capital has come from Ignition Partners. Entellium’s other investors include Sigma Partners and Intel Capital.

Allegedly, late last month, a human resources employee of Entellium discovered financial information in the desk of a former sales vice president that suggested Entellium’s sales were repeatedly misrepresented to its board members. The alleged fraud was then brought to law enforcement by Entellium and Wilson Sonsini Goodrich & Rosati, the company’s legal counsel.

Based partly on the perceived strength of its numbers, the prosecution maintains that the company was able to raise several rounds of venture funding. For example, in 2006, the board was told that Entellium’s revenue was almost $4 million when it was $582,789, according to the government’s complaint. Similarly, the board was told that revenue for 2007 was $6.2 million when it was just $1.4 million.

More recently, Johnston and Jones told their board that Entellium’s 2008 revenue was $5.2 million instead of $1.7 million, according to the complaint.

Entellium board members did not respond to requests for comment from PE Week, including Ignition Partners Managing Director John Roberts and Sigma Partners Managing Director Pete Solvik.

Entellium’s board members allegedly have told Carl Blackstone, the assistant U.S. attorney leading the case, that they were completely unaware of the deception.

Ignition also told the government that in April it wired $2 million to Entellium’s bank account based on the revenue figures presented to the firm. Wire fraud is punishable by up to 20 years in prison.

In addition, Blackstone told the Puget Sound Business Journal that his office is busily trying to “track down all the money.” He suggested that it was moved offshore. Entellium operates a facility in Malaysia with about 75 employees.

At one point earlier this year, Entellium employed more than 190 people in Seattle and Malaysia. —Constance Loizos