Former Entellium Corp. CEO Paul Johnston was deemed a flight risk and ordered to remain in detention Friday afternoon after a federal prosecutor revealed new details about his alleged financial misdeeds, saying Johnston used the company as his “personal piggy bank.”
Investigators have not been able to account for about $9.6 million in Entellium funds that were believed to be transferred to the company’s operations in Malaysia between 2005 and 2008, a federal prosecutor told U.S. Magistrate Judge Mary Alice Theiler during the hearing in U.S. District Court in Seattle.
Johnston, a 40-year-old citizen of the United Kingdom who earned $1.1 million in salary and bonuses between 2004 and 2008, also was given $100,000 in loans from the company without the board’s knowledge or approval, said Carl Blackstone, the assistant U.S. attorney prosecuting the case. He also used a company credit card for personal expenses, including family travel to Asia, Las Vegas and San Francisco, Blackstone said.
“He not only falsified records of the company,” Blackstone said. “He took money he was not entitled to.”
Johnston’s lawyer, Robert Gombiner, disputed the prosecutor’s characterizations. “The idea that Mr. Johnston has funds salted away … is grossly inaccurate,” Gombiner said. He argued that his client wasn’t a flight risk, pointing out that Johnston has been in the U.S. for five years, has no criminal record or history of drug use.
Even Blackstone conceded that Johnston was “not the typical defendant you see in a federal courtroom,” noting his two children, Mercer Island home and sports cars. But the federal prosecutor convinced the judge that the former software CEO could not be trusted, arguing that Johnston once looked Entellium’s board members in their eyes and lied.
“He has shown when only money is at stake, you can’t trust him,” said Blackstone.
Upon entering the courtroom in prison garb, Johnston waved to his wife and mouthed the words, “I love you.” He frequently consulted with his attorney during the proceedings.
After the hearing, Johnston’s wife and attorney declined to comment.
Johnston will be incarcerated pending indictment. If convicted of wire fraud, Johnston could face more than 10 years in prison and could be deported, said Blackstone.
The investigation continues, including questions about what happened to the money that went to Malaysia.
“We haven’t found it yet,” said Blackstone. “We have no reason to believe that he stole the money. (But) the board and company are questioning everything because they are in a state of disbelief.”
The alleged fraud was discovered late last month after an Entellium employee found a set of financial records in the desk of a former vice president of sales, with revenue that appeared to be overstated.
Blackstone said they have not interviewed that former employee, adding that they try to use some discretion about who they target. “Clearly, Mr. Johnston was the mastermind,” he said.
Over the past 10 days, Entellium has nearly collapsed. It started with the abrupt resignations of Johnston and Chief Financial Officer Parrish Jones last week. By last Friday, a massive layoff had occurred at the company’s offices in downtown Seattle. And earlier this week, Johnston and Jones were arrested at their homes, making their first court appearance Wednesday.
Entellium’s Web site was down for part of Friday, but was operating at the time of this post.
Backed with more than $50 million from Ignition Partners, Sigma Partners, West River Capital, Intel Capital and others, Entellium competed against Salseforce.com in the customer relationship management category. Questions have been raised about the auditing practices of Entellium, with accounting firm Moss Adams saying it never completed a full audit of the company.
– John Cook, johnharoldcook@gmail.com
19 responses so far ↓
1 Undone // Oct 10, 2008 at 8:31 pm
All I got to say is wow! Well so there is money not accounted for and not to mention the loan! obviously approved by the CFO - so here you have it. Lastly, How can no one else in finance or HR have known about this…..thats my question.
Also what about the previous heads of sales and marketing…did they know? He one referenced in the article was only around for a year and few months it seems.
2 Interested // Oct 10, 2008 at 11:09 pm
9.6million to an operation in Malaysia over 4 years, you mean 200k per month….to run an office that went up to over 100 people….doesn’t sound much like missing money, more like sensational journalism. And the Ah-ha above….get your head out of the drama and think about it….
3 dwg // Oct 10, 2008 at 11:48 pm
This is beginning to look more and more like PJ was made to take the fall for all of the board’s incompetence and negligence. Obviously the prosecutor could have easily accounted for the 9.6m if they had just contacted the Malaysian offices for their books. That amount definitely looks reasonable considering the number of people employed there over 4 years and the fact that all of the company’s software was produced and supported there (helpdesk included).
4 nono // Oct 11, 2008 at 12:10 am
dear law school interns for the defense, save it for the trial.
5 Anonymous // Oct 11, 2008 at 11:49 am
PJ take the fall???? Are you kidding me? He is the one who was cooking the books. He admitted it in his email to the board. Whatever they had in Malaysia still had nothing to do with the $400,000 discrepancies in the books.
6 Interested // Oct 11, 2008 at 3:42 pm
Ummm, the $400k discrepancy, or in other words the discrepancy in revenue numbers was never there. That was the misrepresentation. Not an amount that was there and has disappeared….. Looks like those wishing to perpetuate the drama still can’t understand the concept of inflated revenue numbers. As for the invested amounts, apart from the amount that went to Malaysia (for reasons that seem obvious even in this thread), the use of the funds for running the business are still not really in question, with the exception of perhaps a little extra being ‘expensed’ here and there….not good, but hardly dramatic.
7 Anonymous // Oct 11, 2008 at 3:45 pm
Looks like the muck rakers have come up pretty dry….not the Enron people were hoping for to keep their own mediocre lives interesting….
8 Anonymous // Oct 11, 2008 at 8:05 pm
yes but remember it was $400,000 per month since 2004.
9 dude // Oct 11, 2008 at 10:55 pm
Read the complaint and do the math. $400k wasn’t the starting delta, but the inflated run rate when the misrepresentation came to light. I’d say Interested is one of the few that is paying attention. I’d agree, no Enron here.
10 Anonymous and disgusted // Oct 12, 2008 at 7:45 am
this ain’t Enron, it’s DeLorean without the cocaine.
PJ wasn’t embezzling, he was trying to keep his flailing, failing dream alive.
He shows up in Seattle and joins the Prosperity church. He meets Jonro from Ignition and the church tells members, “Appear wealthy to attract people to Jesus.” So, PJ begins to appear wealthy and Jonro turns into a cheerleader.
Ignition never once had an IPO and Entellium was their best hope. Jonro was betting big on his Brittish star and didn’t want to be bothered with the details.
As for the Sales VP, he’s now a recipient of Ignition’s largesse as the CEO of a new marketing company. I’m not saying there’s anything fishy about that because his funding didn’t come from Jonro.
PJs belief was that all the investors should keep their mouths shut and their wallets open. Eventually, he thought he would repay everyone many times over.
11 Marketing 101 // Oct 13, 2008 at 10:21 am
Look on the bright side, people have now heard of Entellium
12 Anon // Oct 13, 2008 at 4:44 pm
Sadly for all the wrong reasons..
13 Anonymous // Oct 13, 2008 at 5:00 pm
Is there no end to the negativity. Absolutely right “no publicity is bad publicity”….some people obviously are not only addicted to scandal-mongering (get a life) but also know very little about marketing.
14 Roy@Anthelpdesk // Oct 14, 2008 at 1:11 pm
Oh Man, I just joined the company!!!
15 Customer // Oct 14, 2008 at 6:31 pm
OK, lot’s of conjecture, but not too much deep thought. Over inflating revenues is not necessarily proof of theft - just fraud. The investors really are the idiots here - not getting audited - come on, what excuses did they believe from Johnston & Jones (J&J!). And the banks? We all wonder why we have a global financial crisis - doesn’t give you too much confidence does it.
OK, so what remains for the customer. By and large it is a good product, but data extraction through the reporting function is two dimensional. Getting the full history behind transactions? More of a problem. I requested our data last Friday - help desk kept promising me they would send it. Tonight, live chat is dead chat - nothing, nada! So, don’t be surprised if they slipped away in the night. If I lose my data, I’m going after Ignition, the Bank and a couple of others………..
16 Customer // Oct 14, 2008 at 6:35 pm
By the way, Anonymous,
“Anonymous // Oct 13, 2008 at 5:00 pm
Is there no end to the negativity. Absolutely right “no publicity is bad publicity”….some people obviously are not only addicted to scandal-mongering (get a life) but also know very little about marketing”
You seem to be a highly educated, highly intelligent person.
This isn’t scandal mongering, this is real - for those who worked there, for the families affected, for the customers, and the economy as a whole. “Get a Life”? and you have one…or maybe your J or J, trying to justify your perpetuated lie….
17 Entellium, economy dominates party talk // Oct 15, 2008 at 9:59 am
[...] debacle, a monumental blow up in which two top executives of the Seattle software startup were charged last week with wire fraud in what a federal prosecutor described as a classic case of “cooking the [...]
18 Ex-Employee // Oct 17, 2008 at 10:52 am
Dear Customer,
1) As of today, all of Help Desk team in KL has been axed as well as more than a handful of other staff.
The Helpdesk will now be operated by 3 staff from Seattle instead - we don’t know who they are but that’s what we were told.
The website is down because someone in Seattle changed the data center password and did not communicate that to the team in KL.
You probably should talk to Charles Miller. His email is charlesm@… but bet he won’t bother. Just like how he didn’t bother to explain anything or give the KL team a call since October 1st.
If that fails, you can send your email to the whole entire operation (or what’s left of it… after today) - they should receive it via this email - globalteam@…
2) Your Incident is in Queue - we have received it. But nobody is processing it. Our DBAs are gone, except for one. Be nice to her.
Thank you.
19 Customer // Oct 22, 2008 at 3:35 am
Thanks, Ex-Employee. Keeping your customer focus when you have been laid off is highly commendable. Put the url for this on your resume - your next employer would appreciate it. Good luck with your job search.
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