Former Entellium execs sentenced for fraud in Seattle

Two former top executives of Seattle software startup Entellium, who admitted to cooking the books to mollify investors pouring millions into the company, were sentenced to prison Friday by a federal judge.

Former Chief Executive Paul Johnston, 40, of Mercer Island, was given a three-year prison sentence and ordered to pay more than $2 million in restitution — the amount of his salary and bonuses over the four years that the fraud occurred.

The company's former financial officer, Parrish Jones, 39, of Seattle, was given a two-year sentence and ordered to pay restitution of $865,000.

U.S. District Judge Robert Jones also ordered both men to perform 80 hours of community service in a soup line or homeless shelter to give them a better perspective on the "ultimate devastation caused by their actions."

Johnston and Parrish Jones did not represent the typical white-collar-fraud suspects, Assistant U.S. Attorney Carl Blackstone acknowledged to the packed courtroom, where the men's friends and family sat alongside investors who had sunk nearly $52 million into Entellium before it collapsed shortly after their arrests in October. The company filed for Chapter 11 bankruptcy protection.

"I have to admit they're model citizens," Blackstone said. "Not even a parking ticket." Both men cooperated with the investigation and pleaded guilty to wire fraud.

Moreover, Blackstone said, Entellium at the time was a going concern as a developer of customer-management software. It had an accepted product, motivated employees and charismatic managers, even though it was still losing money, he said.

It would be easy, Blackstone said, to "slap them on the wrist" and leave it at that.

"But that would not be right, and it would not be just," he said. It wasn't as if they accidentally "strayed over the line."

"They strayed, and strayed, and strayed," making false revenue projections year after year.

Their lies drove Entellium into the ground, forcing bankruptcy proceedings and resulting in nearly 200 people losing their jobs, Blackstone said. Johnston was once offered $100 million for the company by software maker Intuit — an amount he dismissed as "too little" to his board but privately rejected because he knew the fraud would be exposed, Blackstone said.

Intuit has since purchased assets of the company.

Johnston, a British citizen, faces deportation after prison. "I am ashamed of myself and where I am," he told the court.

"As I've sat in prison these last few months, it turns out that 'sorry' just isn't a big enough word," he said.

Johnston said he was driven to lie by "fear of failure, fear for my employees, the fear of letting down investors."

Blackstone singled Jones out for breach of duty to the board and investors as the company's chief financial officer. Jones cooperated from the outset. He said he had fooled himself into thinking that, as the company grew, the revenue projections would right themselves.

Mike Carter: 206-464-3706 or mcarter@seattletimes.com