The chief executive of Entellium, charged with wire fraud, was ordered detained without bail in a federal hearing today.
Former Entellium Chief Executive Paul Thomas Johnston is a flight risk and will be detained without bail pending a grand-jury investigation, a federal magistrate judge ruled Friday.
Federal prosecutors charged Johnston, 40, with wire fraud in a scheme to grossly inflate sales figures to lure millions of dollars from private investors. Parrish L. Jones, 39, Entellium’s finance officer, is also charged in the complaint. Jones was released on bond.
Johnston, a citizen of the United Kingdom who has lived in Seattle for five years, has few ties to the area besides his wife and children, Assistant U.S. Attorney Carl Blackstone said. Johnston moved the company headquarters to Seattle from Malaysia in 2003, but kept an office in Malaysia.
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Based partly on the inflated sales numbers, Entellium attracted $50 million in venture capital, including $19.7 million from Bellevue-based Ignition Partners.
Under Johnston, Entellium transferred $9.6 million to Malaysia and Singapore, which may have been used for the company’s operations, but investigators have not yet accounted for the money, Blackstone said.
He argued that Johnston could not be trusted to appear in court because he not only falsified company records but also “treated the company as his personal piggy bank.”
He was paid a total of $1.1 million in salary from 2004 until he resigned last month, along with bonuses of $325,000. Of the bonus money, $200,000 was never approved by the board, Blackstone said. Johnston also took two $50,000 loans from the company without the board’s authorization, he said.
Johnston shook his head during Blackstone’s remarks.
If Johnston was going to flee the country, he would have done so already, before he was arrested and charged, argued Public Defender Robert Gombiner. He said Johnston sent an e-mail acknowledging “a grave mistake” and cooperated with FBI agents upon his arrest Tuesday. Johnston has been married 13 years and is a permanent resident of the U.S. with no prior criminal record, Gombiner said.
U.S. Magistrate Judge Mary Alice Theiler questioned whether Johnston had money “not known to the court that would facilitate flight.”
Johnston and his wife had a Porsche, a Maserati and a $1 million house in Mercer Island, but despite his large salary, they owed nearly as much as they paid for them, she said.
“This is an individual who paid large amounts of money and reports owning basically nothing,” she said. “The question arises, what happened to all that?”
It was clear that when Johnston sent the e-mail acknowledging overstating revenues, he did not know the consequences he would face, Blackstone said. “Our families are not aware of this and we are telling them now,” Johnston wrote in the e-mail.
In court on Friday, Johnston mouthed “I love you” to his wife, and was led away. Prosecutors now have 30 days to seek an indictment.
Kristi Heim: 206-464-2718