Former Entellium CEO, finance chief may be near plea deal

Former Entellium executives Paul Johnston and Parrish Jones may be close to reaching a plea agreement with federal prosecutors on charges of falsely inflating company revenue to lure millions of dollars from investors.

The deal would allow the defendants to avoid trial and possibly obtain a shorter sentence in exchange for pleading guilty to one count of wire fraud, which is punishable by up to 20 years in prison and a $250,000 fine.

An information document, which usually contains facts the parties are prepared to admit in the case of a plea deal, was filed by prosecutors in federal court Nov. 26. Prosecutors have until Dec. 8 to seek an indictment.

"It's our hope that it would move forward to a plea situation," Emily Langlie, public-affairs officer at the U.S. Attorneys Office, said Monday. "I would hope within the month there would be resolution."

Johnston's attorney declined to comment and Jones' attorney could not be reached.

The document states that CEO Johnston and financial officer Jones created special "Board Books" to present to directors during board meetings during the last three years. Although the books showed revenue of $15.4 million, Johnston and Jones knew the actual revenue was about $3.7 million. The meetings included one on March 21 of this year, in which a director representing Bellevue-based Ignition Partners was considering making additional investments.

On April 21, Johnston presented a "Business Update" to Ignition, falsely claiming revenue of $6.3 million in 2007, when he knew that revenue was "significantly less than that," according to the court document. During the meeting, Johnston was able to secure $2 million in a bridge note from Ignition.

Based partly on the falsified figures, investors ultimately poured more than $50 million into Entellium.

Johnston's attorney, federal public defender Robert Gombiner, said Monday he had no comment. Jones' attorney, Jeffrey Robinson, of Schroeter, Goldmark & Bender, was out of the country and could not be reached.

Johnston, a citizen of the United Kingdom who lived on Mercer Island with his wife and children, was judged a flight risk and remains in custody. Jones, of Seattle, is free on bond.

The two abruptly resigned from Entellium in October, and Johnston sent an e-mail to two board members in which he admitted to "grave mistakes." The company then laid off most of its Seattle employees.

The privately held firm, with headquarters in Seattle and an office in Malaysia, sells customer-relationship-management software for small businesses.

Even if the sides reach an agreement this month, it would not resolve the mounting problems at Entellium.

The company faces a string of lawsuits by corporations and individuals. Former employee Leif Jensen is suing Entellium and acting Chief Executive Charles Miller for allegedly failing to pay severance in violation of his labor contract.

Jensen said he was told he was being terminated immediately on Oct. 3 and pressured to sign a separation agreement within 30 minutes to keep his health insurance.

Entellium could not be reached for comment Monday.

Meanwhile, the company is being "actively marketed for acquisition," and many of its resources have been redirected to its Malaysian offices, Jensen states in his complaint filed in King County Superior Court.

CIT Communications Finance of New Jersey, which supplied office products and services to the company, is also suing Entellium, claiming it is owed more than $100,000.

Fleischmann Office Interiors filed a lawsuit seeking more than $16,000 in unpaid rent from June to October for furniture Entellium used in its Pioneer Square office.

The Laurel Group, a company that provides human-resource consulting services, filed a suit claiming Entellium owes more than $35,000. Seattle-based Design Commission filed a suit seeking $17,000 for work it performed to design a Web site for Entellium's newest software product.

Kristi Heim: 206-464-2718 or kheim@seattletimes.com