Islander CEO arrested for fraud

An Island resident and CEO of a local software company was arrested Tuesday night at his South-end home on West Mercer Way for allegedly cooking the accounting books and defrauding investors of about $50 million.

According to the Seattle office of the U.S. Attorney's office, Paul Thomas Johnston, 40, the Chief Executive Officer of Entellium, a Seattle-based software firm, is accused of keeping two sets of 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 Johnston and the CFO of the company lied about finances from March 2004 through this September. 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 of another executive on Sept. 26. Four days later, Johnston and the CFO quit.

Johnston and the CFO, Parrish L. Jones, 39, of Seattle, announced their resignation in an e-mail about a week before they were arrested. In an e-mail sent on Sept. 30 to a couple of company board members, Johnston announced the resignations and admitted misrepresenting revenues.

"We have both made a grave mistake to misrepresenting our revenue reporting to the board," the e-mail reads. "Looking back at the time we thought we would be able to right the wrong and correct our representation."

According to U.S. Attorney Jeffrey Sullivan, the board contacted the law enforcement when they found out about the actions admitted by their two chief executives.

“Truthful accounting and transparency are critical to our financial systems,” said U.S. Attorney Jeffrey C. Sullivan. “I want to commend Entellium for contacting law enforcement when it became aware of inflated revenue claims made by company executives. Corporations are on the front line in rooting out fraud, and we need and expect them to come forward.”

Wire Fraud is punishable by up to 20 years in prison and a $250,000 fine. The two executives were in federal court on Wednesday. Entellium develops software for small and mid-sized businesses to manage their customers. It is unclear if the company will remain in business or if the victims will get their investments returned.

The e-mail sent by Johnston also indicated they were aware of the consequences for what they are accused.

"For the next 24 hours we need to discuss the consequences of our actions with family members and ensure we do what we can to make the best of a terrible situation," the e-mail reads. "Deeply shamed and sorry."

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