Two former top executives from Seattle software provider Entellium were arrested on Tuesday night after allegedly inflating their company's revenues to attract investments.
Former CEO Paul Thomas Johnston and former Chief Financial Officer Parrish Jones face charges in a U.S. District Court in Seattle for wire fraud.
The pair used false accounting figures to attract about $50 million in private investment from companies such as Ignition Partners, the FBI alleges. Ignition, based in Bellevue, Wash., invested $19 million in Entellium but told investigators that it would not have made the investment, had it been aware of the company's true financial status.
The government says the Entellium executives claimed that 2008 revenues reached $5.2 million, though the true figure was only $1.7 million. Additionally, investors were allegedly told that 2007 revenues reached $6.2 million, though actual revenues were $1.4 million, and 2006 revenues were said to reach nearly $4 million, though the correct figure was $582,789.
An Entellium human resources manager discovered the discrepancy in late September, while cleaning out the desk of a former vice president of sales, according to the FBI. Then on September 30, Johnston and Parrish both abruptly resigned, admitting to board members that they had misrepresented the company's revenues. The executives told the board that they had overstated revenues by about $400,000 a month since 2004.
After the two resigned, nearly all of the company's 100 employees were laid off, according to the Seattle Times.
Entellium, a customer resource management software-as-a-service provider, was founded by Johnston in 2000 in Malaysia. Its headquarters were moved to Seattle in 2003. Johnston and Parrish could face a maximum sentence of 20 years in prison and a $250,000 fine.