Friday, December 12, 2008

Former Washington State Software CEO Pleads Guilty To Financial Statement Fraud

Paul "PJ" Johnston, 40, the former CEO of Seattle, Washington-based software maker Entellium Corp., plead guilty yesterday to one count of wire fraud in connection with allegations that he and the company CFO had inflated the revenues of the company, defrauding investors. Johnston was arrested in October along with CFO, Parrish Jones, 39, and both have resigned from the company. Jones is expected to plead guilty next week to the same charge. Authorities claimed that Johnston and Jones maintained two sets of books and records for the company. For example, stated revenue for 2006 was given as $4 million when in fact it was only $582,789. Stated revenue for 2007 was given as $6.2 million when in fact it was only $1.4 million and stated revenue for 2008 was given as $5.2 million when in fact it was only $1.7 million. Authorities also claim that the inflated revenues helped induce investors put up more than $50 million, including Ignition Partners, a Washington State venture capital firm which made a $19 million investment in Entellium. The company has filed for bankruptcy and laid off a significant portion of its staff. Intuit Corporation is reported to have negotiated the purchase of the assets of Entellium for just $7.7 million. Johnston and Jones will face up to 4 1/2 years in prison, plus a fine of $250,000 each and restitution. Johnston is still in custody. Ironically, the Johnston was listed as one of the top 20 enterprise software leaders for 2007 from an industry association.

Read the story here, here and here.

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