Just because you run a private company that does not have to file quarterly financial statements with the SEC does not make it okay to cook your books. The CEO and CFO of Seattle-based CRM firm Entellium found that out the hard way. They were arrested by the FBI earlier this week for inflating their revenues and then lying to their board about it. The company appears to be toast. It fired two thirds of its staff of 60 people in Seattle, and its Website is down. We are putting it in the deadpool.
The CEO, Paul Johnston, and CFO, Parrish Jones, kept two separate set of books. One they showed the board, and the other was the real one. The fake one inflated revenues by $11.7 million over the past three years. For instance, in 2006 they told the board that revenues were $3,950,362, but they were really only $582,079. In 2007, the fake revenue number jumped to $6,291,705, whereas the actual revenues were only $1,446,238. This deception continued until September 26, 2008 when the VP of human resources, Melisah Wojtacha, came across the fake board books while cleaning out the desk of a former sales VP.
The scandal in Seattle is particularly embarrassing for Ignition Partners, the VC fund made up of former Microsoft hotshots who put in $19.7 million of the total $50 million that Entellium had raised. Ignition’s Jonathan Roberts sat on Entellium’s board (as did former Cisco CIO Pete Solvik, now a managing director at Sigma Partners). Did they not have outside auditors verify the accounting?
Ignition can kiss that $20 million goodbye.