Meet Jonathan Roberts, a venture capitalist at Ignition Partners and board member of Entellium.  Previously, I blogged about the arrest of two former Entellium executives for cooking the company books and deceptively raising nearly $50 million in venture money.  

Paul Johnston, the former CEO, remains in jail. Parrish Jones, the former CFO, has been released awaiting indictment.  Both seem to be negotiating plea deals to reduce their wire fraud charges.

Now, Jonathan Roberts, basically the guy left holding the bag at Entellium, is making news as the maligned company files for Chapter 11 bankruptcy, while selling assets to Intuit.

Jonathan has asked the bankruptcy court to approve retention bonuses for the 15 remaining Seattle employees, as well as severance packages for three key employees should they be let go.  He asserts that these three employees have been identified as key personnel by Intuit, critical to the transition as Intuit takes over assets.  In addition, Jonathan requested retention bonuses for the 13 remaining Malaysian employees.

Some former Entellium employees are angry for not  having received severance packages after their abrupt terminations shortly before the news of fraud broke out.  Leif Jensen filed suit last month for his lack of a severance package after signing a separation agreement “under pressure”.

Jonathan’s request for the retention bonuses and severance packages have further aggravated some former Entellium employees.  They point out that Jonathan needs to bear some responsibility for the situation.  After all, he and the other board members obviously did not conduct proper due diligence on the business.  

The question now is should Jonathan be asking to honor the severance packages that were voided by he separation agreements that many former employees say were signed under considerable pressure?

Right now, Jonathan has a fiduciary duty to all share holders to make the most of a bad situation.  That means he needs to get the assets sold to the potential buyer at the best possible value.  It also means that he needs to salvage as much of the money back to investors and creditors as possible.  The retention bonuses and severance packages are a way to ensure that the assets are successfully sold. No brainer there.

But beyond the fiduciary duty, Jonathan also has the responsibility to make sure that the company does what it can to fulfill obligations to its former employees.  Whether the separations agreements were signed under duress will be determined by the court of law.  But Jonathan has an opportunity right now to stand up and take some accountability along with the board by righting what may have been a wrong.

My first “Entellium” post was mostly about how we need strong societal valuation of personal integrity to offset some of the unbridled greed that sometimes our capitalist system creates.  So, again, I’m addressing the Entellium issue with what may be another personal integrity issue.

No one likes to be duped.  As a person who has dealt with Jonathan, I’m certain he is tremendously embarrassed by the whole ordeal.  He trusted Paul Johnston, someone he saw at his church Sunday after Sunday.  Jonathan is a brilliant marketer with great passion in all he does.  Brainstorming with him on business ideas was one of the highlights of working at CSG Openline.  I consider him a man of tremendous talent and integrity.  I trust he will act accordingly.

The criminal complaint says that the company executives devised a scheme to defraud investors by overstating revenues.  The government alleges that actual 2006 revenues were $582,789 but the pair inflated the revenues to nearly $4 million; actual 2007 revenues were $1.4 million inflated to $6.2 million; and actual 2008 revenues were $1.7 million inflated to $5.2 million.

The false revenue numbers, according to the government, were used by the pair to attract $50 million in private investment, including $19 million from Ignition Partners, of Bellevue. Two Ignition partners told government investigators that they never would have made such an investment had they known the actual revenue figures.

During recent troubled economic times, we’ve been bombarded with developing stories of business corruption and greed.  Yet, this news hits especially hard for me.  These are local players within the greater Seattle entrepreneur community.  

Paul Johnston lives in my suburban town.  We’ve shared a table at our neighborhood Starbucks discussing his company.  The Ignition Partners is a prestigious local venture capital firm.  Many of us know their partners.  They don’t deserve this kind of notoriety.  

Even more disturbing may be that I know how easy it is to be deceptive.  All executives are under tremendous pressure to perform by meeting expected numbers.  No matter how many rules and regulations are rolled out, there will be grey areas that business executives can manipulate.  It’s personal integrity that determines how each executive plays in these grey areas.  

In larger companies, there are more checks and balances.  Yet, the Enron fiasco has taught us that even audits from one of the most prestigious accounting firms of that time don’t ensure against foul play.  In the smaller companies, especially those in the startup arena, I suspect mis-information is common.  That’s why venture capitalist normally invest in “people”, not just “ideas”.  

These Entellium executives, however, had clearly crossed the line of fraud and deception, if the allegations are true.  There is no “grey” here.  So again, we are reminded about the one achilles heel of our high-energy capitalist system — unbridled greed.  

So, do we regulate more to guard against the actions of desperate, greedy executives?  Maybe, however, they will not in of themselves alleviate the problem.  What our capiitalist society need most is to collectively value personal integrity more than it currently does.  We humans innately value integrity.  In America, however, we’ve given material wealth and success a higher status than integrity for the last some 30 years. 

Our free-entreprise system is just an economic system.  It is actually quite a good one that can inspire tremendous human ingenuity, innovations, and achievements.  Our society, however, needs to be the watchdog against our innate greed.  I think the recent painful economic events will help our social and cultural mindset to shift appropriately to increasingly valuing personal integrity.  At least, I hope so.

For people like Ike, however, doing “nothing” is not possible. It’s in their blood to do “something” – “something special”. By 2002, Ignition Partners, a prestigious local venture capitalist group, talked him into joining their team as a senior advisor and venture partner. Last year, Ike was involved in more than $300 million worth of mergers and acquisitions activities through his company, Lee Technology Consulting. “I wasn’t really looking for these opportunities,” Ike said. “Lots of requests came in looking for my help.”

Well, that is not surprising given Ike’s impressive track record. He came to the United States in 1980 working for the Korean conglomerate LG International. Two years later, he started his own defense electronics company, Amtech, in Los Angeles. When that industry suffered a downturn, he refocused the company on microchips. By 1986, he put angel investment into the then emerging microprocessor company, Cyrix, which later listed on the NASDAQ in 1993. “Once I got a taste of an IPO, I switched my focus to becoming an investor,” Ike recalled.

Ike eventually moved north to Silicon Valley and was involved in six IPO’s, including the hugely successful listing of Netscreen Technologies in 2001. Goldman Sachs voted this as its IPO of the Year after raising $160 million from the offer, well above its target. Netscreen Technologies continued its success story when it later sold to Juniper Networks for $4 billion in 2004.

Do “nothing”? Currently, Ike is working on his seventh IPO, as the company prepares for its road show. Meanwhile, the business plans continue to pour in for his review. And he just can’t seem to resist reading them. “I’ve noticed that some companies really grow during difficult economic times,” he said. “Actually, these tough times often present a lot of opportunities. We have a two-year window to make good investments.”

How can he do “nothing” when he enjoys so much helping young entrepreneurs? In this regard, he especially would like to help young Korean-American entrepreneurs. He has noticed a lack of venture-backed Korean-American entrepreneurs in the Seattle area, compared to those in California. Ike has volunteered to be a panelist on a session about “Harnessing the Entrepreneurial Opportunities” for an upcoming Korean-American Coalition (KAC) National Convention that will be hosted in Seattle September 26-28.

Ike’s successes are truly an inspiration to all. His willingness to help young entrepreneur is a tremendous gift to all those who take advantage. As much as he has tried to avoid the spotlight here in Seattle, those in the know understand what he can contribute to the local business community. In fact, he recently has been nominated as a Business Ambassador by the State of Washington.

As for his original goal of spending time with his children, his daughter is now in a boarding high school on the east coast and his son is in Junior high school becoming ever more independent. As for lowering his golf handicap, he unfortunately suffered a back injury that required surgery. Well, I guess it has turned out well that business opportunities keep following this charmed man.