Entellium CEO pleads guilty to wire fraud

Former Entellium Chief Executive Paul Johnston pleaded guilty to one count of wire fraud Thursday, admitting to falsely inflating the company's revenue over four years to lure investors.

Under the agreement with federal prosecutors, Johnston is likely to face a sentence of three to four years in prison.

Johnston, 40, and former Entellium Chief Financial Officer Parrish Jones, 39, were accused of creating a scheme to deceive the company's board by keeping a separate set of books, with sales figures many times higher than the real numbers.

The scheme dated back to March 2004, shortly after Johnston moved the company to Seattle from Malaysia, and went on until their resignations Sept. 30, according to the agreement signed by Johnston Thursday. Bellevue-based Ignition Partners became one of its largest backers, investing $19 million in Entellium and occupying seats on its board.

Assistant U.S. Attorney Carl Blackstone will argue that the sentence should reflect that Johnston abused his position of trust, which means he could serve between 41 and 51 months, Blackstone said.

Johnston plans to contest that claim, and if he is successful the sentence could be shorter, between 33 and 41 months, according to prosecutors. The sentencing guidelines are voluntary and the length of time is ultimately up to the judge, said Johnston's attorney, federal public defender Robert Gombiner.

In court, Johnston appeared in good spirits. He smiled and shook his attorney's hand after the proceeding.

Outside the courtroom, Blackstone said it would not have been fair to blame Johnston for the entire $50 million that investors poured into the company, since "this was a legitimate company with a real product and real employees."

In determining the restitution Johnston must pay back, attorneys agreed to use the amount by which Johnston enriched himself through the scheme, about $1.4 million.

"With the exception of lying about revenue, he appears to be a legitimate businessman who was trying to make the company successful," Blackstone said.

Even under the false revenue figures, the company was losing $1 million a month, yet Ignition was still willing to put money in, he said.

Sentencing is scheduled for March 13 in U.S. District Court in Seattle.

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