Entellium

» see entellium.com as it lived, on the wayback machine

~ the last words ~

Customer relationship management software is a category you meet only if somebody hands you a quota or a purchasing budget. I have never had either one, so Entellium is a company I know entirely through court filings, which happens to be how everybody else knows it too.

Paul Johnston founded it in Kuala Lumpur in May 2000, coming out of a sales job at Apple, and moved the headquarters to Seattle in 2003. The product line was ordinary for its moment, a desktop CRM client called Rave with a browser version named eSalesForce beside it. There was a support ticket tool as well. Ordinary was the whole problem. It sat in a market Salesforce was in the middle of taking, and it needed to look like it was holding some ground.

It looked that way because the numbers were invented. Johnston and the chief financial officer Parrish Jones ran two sets of books from March 2004 to September 2008. The set shown to investors reported close to four million dollars of revenue for 2006, against a real figure of $582,789. The next year the claim was $6.2 million against $1.4 million actual. On the strength of the fake books the company raised more than fifty million dollars, most visibly from Ignition Partners, whose people later told investigators they would never have written the check if they had seen the real ones.

~ the record ~

~ the early days ~

The pitch was reasonable enough that reasonable people bought it. In the middle 2000s every enterprise software investor was looking for the company that would be to Salesforce what Salesforce had been to Siebel, and a scrappy outfit with an Apple veteran in charge and a working product fit the shape of that bet. Entellium got written up and got funded again.

Nothing about the software was fraudulent. Customers used it and the engineers who built it were doing real work. The fraud was entirely in the gap between what the company earned and what it said it earned, and that gap is invisible from a desk inside the building. Forty people were employed there on the strength of a number none of them could have checked.

~ the day it died ~

On 26 September 2008 an employee in human resources was clearing out an executive's desk and found the real ledgers in it. That is the entire mechanism. Four years of a carefully maintained lie ended because somebody was tidying furniture.

Johnston and Jones both resigned four days later. On 7 October the two of them were arrested on wire fraud charges, and the forty remaining employees were laid off almost immediately after. The company filed for Chapter 11 protection on 2 December 2008, ten weeks after the desk. Johnston pleaded guilty that same month.

~ what got buried with it ~

Johnston was sentenced to three years and ordered to repay more than two million dollars, the figure being his salary and bonuses across the four fraudulent years. Jones got two years and $865,000. The sentences are worth stating plainly because software company collapses almost never end in a prison term, and this is one of the few where somebody actually went.

The assets went to Intuit in the bankruptcy. A year later Intuit was reported to be doing nothing with them at all, which is the ordinary end for code bought out of a fire sale. Eight years of engineering behind a working CRM, and no user touched it again after the arrests. The people who lost the most were not the investors, who could absorb it. They were the forty people who came in on 8 October to find out what their employer had been for.

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