October 9th, 2008
Entellium executives arrested by FBI for making up revenue figures
Software as a service company Entellium’s future is uncertain after its CEO and CFO were arrested by the FBI for inflating sales to land venture capital.
The U.S. Department of Justice said in a press release that CEO Paul Thomas Johnson, 40, and Parrish Jones, 39, were arrested by the FBI for basically making up revenue figures. Entellium offers customer relationship management software. The Seattle Times reports that most Entellium employees have been laid off as of last week. Entellium reported the fake results to the FBI.
Here’s the FBI’s account:
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.
That about sums it up.
Larry Dignan is Editor in Chief of ZDNet and Smart Planet as well as Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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