Islander jailed on suspicion of defrauding investors

An Island resident and CEO of a local software company was arrested last 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.

On Friday, a federal judge ruled Johnston is a flight risk and refused offering him bail pending a grand-jury investigation. Prosecutors fear Johnston, who is a citizen of the United Kingdom, would leave the country if released from jail.

The investigation of the fraud charges was conducted by the FBI and states that Johnston and the chief financial officer 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 another executive on Sept. 26. Four days later, Johnston and the CFO quit.

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.

An e-mail sent by Johnston prior to his arrest indicated that the pair was aware of the consequences for what they did.

“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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