Entellium CEO, CFO charged with fraud, company future unclear

In the past week, Entellium has let go most of its staff and its CEO and CFO have been charged with wire fraud for inflating revenues to the company's board.

Executives at Entellium Corp. are facing charges of wire fraud, capping off a week that has seen the company lay off its sales and marketing staff. The company appears to be on the brink of shutting down.

Paul Johnston, president and CEO of the Seattle-based company, and Parrish Jones, the chief financial officer, were charged yesterday in U.S. District Court in Seattle. They appeared in court Wednesday afternoon. Jones was released on bond, but Johnston, a citizen of the U.K., was held in custody pending a hearing on Friday, according to the Associated Press.

According to the complaint, Johnston and Jones falsely inflated the revenue of Entellium in a scheme to get investors to invest in the company. As a result, more than $50 million was invested in Entellium between March 2004 and September 2008, the complaint says.

According to the complaint, Johnston and Jones misrepresented revenues for the company by a total of more than $11 million over three years. An attorney for Entellium notified the U.S. District Attorney's office of the matter on October 3.

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The matter was brought to the attention of the board on Sept. 29 after the vice president of human resources discovered financial information left behind by Entellium's former vice president of sales. The books showed the discrepancy between what Johnston and Jones had been reporting and actual results. One day later, Johnston submitted his and Jones resignation in an email to Entellium's board of directors.

"We have both made a grave mistake misrepresenting our revenue reporting to the board," Johnston wrote. "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. Revenues have been overstated since 2004 with a delta of approximately $400K a month."

The wire fraud charges, filed Tuesday in U.S. District Court in Seattle, stem from nearly $2 million transferred from Ignition Partners to Entellium. Ignition is an investor in Entellium and has two members on its board. According to the complaint, Entellium has raised a total of $50 million from private investors, the largest being Ignition, which has invested more than $19 million.

The future of the company remains in doubt.

By Friday of last week, Entellium laid off most of its 100-person workforce, including the entire sales and marketing team. Calls placed to Entellium were not returned.

James Wong, CEO of Avidian Technologies Inc., a Redmond, Wash.-based CRM provider, has expressed interest in buying the assets of Entellium.

"I think our focus is on the same market, small and medium-sized businesses, and as a local company to them, we think we can transition some of their support staff and customer-facing people fairly easily," Wong said. "It's about taking care of the customer at this point."

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