MI resident, software CEO sentenced to jail for fraud

Island resident Paul Johnston, the former chief executive of the Seattle software startup Entellium, has been sentenced to three years in prison for defrauding investors in 2008. He must also pay more than $2 million in restitution — the amount of his salary and bonuses over the four years when the fraud occurred. U.S. District Judge Robert Jones passed the decision in federal court on March 27.

By Elizabeth Celms • April 7, 2009 11:35 pm

Island resident Paul Johnston, the former chief executive of the Seattle software startup Entellium, has been sentenced to three years in prison for defrauding investors in 2008. He must also pay more than $2 million in restitution — the amount of his salary and bonuses over the four years when the fraud occurred. U.S. District Judge Robert Jones passed the decision in federal court on March 27.

Johnston, 40, and his former colleague, Parrish Jones, 39, both admitted to cooking the books and defrauding investors out of more than $50 million. The two executives were arrested in October 2008. Shortly afterward, Entellium collapsed.

Jones, who was the chief financial officer of Entellium, was sentenced to two years in prison and ordered to pay $865,000 in restitution.

Johnston and Jones were both ordered to perform 80 hours of community service in a soup line or homeless shelter to give them a better perspective on the repercussions of their fraudulent actions. More than 200 people lost their jobs because of the Entellium executives’ dishonesty.

According to the Seattle branch of the U.S. Attorney’s office, Johnston, who is a U.K. citizen, is accused of keeping two sets of Entellium accounting books, one with real numbers and another inflated with false sales figures intended to lure investors.

The investigation of the fraud charges was conducted by the FBI and states that Johnston and Jones, of Seattle, lied about finances from March 2004 through September 2008. According to the complaint filed by the U.S. Attorney’s office, an employee in the human resources department found the falsified record books while cleaning the desk of another executive on Sept. 26. Four days later, Johnston and Jones quit.

Johnston owns a home on the South end of Mercer Island. He and his wife purchased the home in March 2006 for $1.1 million. Its appraised value is $1.4 million.

Wire fraud is punishable by up to 20 years in prison and a $250,000 fine. Entellium developed software for small and mid-sized businesses to manage their customers.