The remaining employees, much maligned by some of those laid-off back in October, persevered through uncertainties to negotiate an asset sale of the spiraling company.  If successful, that sale to Intuit will raise money to pay Entellium’s creditors.  This was all done under the leadership of board member Jonathan Roberts of Ignition Partners. 

In early October, Entellium laid off 114 workers after CFO Parrish Jones and CEO Paul Johnston were charged for inflating numbers at the maker of customer relationship management software.  At that time, the company did not have the funds to pay out severances, and had to get separation agreements from laid off employees to keep the company going.  

My observations in following the Entellium saga have been about “personal integrity”.  As I’ve stated previously, Paul Johnston and Parrish Jones had none.  I was confident that Jonathan Roberts would do the right thing, as I predicted in my last post.  

If you are interested in following the story more closely, follow John Cook on Techflash.  He’s a talented journalist and a must-read for anyone interested in the start-up community in Seattle.  My blog posts are just observations about people, not the story telling.

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.