Two top executives at Entellium have been arrested for wire fraud, a charge that comes less than a week after the Seattle software company hit the wall.

Former Chief Executive Paul Johnston and former Chief Financial Officer Parrish Jones -- who abruptly resigned last week -- could face up to 20 years in prison.

The criminal complaint says that the company executives devised a scheme to defraud investors by overstating revenue. In 2006, the complaint says that board members were told that Entellium had nearly $4 million in revenue, when in fact it was just $582,789. Entellium, which laid off most of its staff last week, was backed with about $50 million in venture capital from Ignition Partners, Sigma Partners and others.

Johnston and Jones were arrested last night and plan to make an appearance in U.S. District Court at 2:30 p.m. today. Stay tuned for more details. Here's a copy of the full press release that was issued this morning:

Two former executives of Entellium Corporation were charged today with Wire Fraud in U.S. District Court in Seattle. PAUL THOMAS JOHNSTON, 40, of Mercer Island, Washington and PARRISH L. JONES, 39, of Seattle, Washington, were arrested last night and will make their initial appearances in U.S. District Court today at 2:30. JOHNSTON was the former Chief Executive Officer (CEO) of Entellium. JONES was the former Chief Financial Officer (CFO) of the company. Entellium is a privately held Seattle corporation which sells customer relationship management software. According to the criminal complaint sworn under oath by an FBI agent, JOHNSTON and JONES devised a scheme to defraud investors in the company by representing that company revenues far exceeded the actual figures.

The misrepresentations were first uncovered in late September 2008, when a human resources employee was cleaning out the desk of a former Vice President of Sales for Entellium. The human resources employee discovered “board books” which contained financial information that had been presented to the Entellium board of directors. When the company comptroller reviewed the board books she discovered that the company revenues had been grossly inflated. The board was told that in 2006 the company had revenue of nearly $4 million when in fact if was just $582,789. The stated revenue figure for 2007 was $6.2 million, when in fact it was $1.4 million and in 2008 the stated revenue was $5.2 million when in fact it was only $1.7 million.

The Entellium legal counsel reported the matter to law enforcement. The false revenue numbers were allegedly used by JOHNSTON and JONES to attract approximately $50 million in private investment, including over $19 million from Ignition, a Bellevue Washington venture capital firm. Two Ignition partners served on the board of Entellium and told investigators that they would not have made such a significant investment had they been aware of the accurate revenue figures. In April 2008, Ignition wired $2 million into Entellium’s bank account based on fraudulent revenue figures presented to Ignition’s partners.

 “Truthful accounting and transparency are critical to our financial systems,” said U.S. Attorney Jeffrey C. Sullivan. “I want to commend Entellium for contacting law enforcement when it became aware of inflated revenue claims made by company executives. Corporations are on the front line in rooting out fraud, and we need and expect them to come forward.”

Wire Fraud is punishable by up to 20 years in prison and a $250,000 fine. The charges contained in the complaint are only allegations. A person is presumed innocent unless and until he or she is proven guilty beyond a reasonable doubt in a court of law. The case is being investigated by the FBI. The case is being prosecuted by Assistant United States Attorney Carl Blackstone who leads the U.S. Attorney’s Office Complex Crimes Section.

UPDATE: Here's a copy of the complaint: PDF, 9 pages.

UPDATE: Here's a copy of Johnston's resignation letter in which he concludes that he is "deeply shamed and sorry" for his actions.

UPDATE: Ignition Partners calls Entellium saga 'a jolt'

UPDATE: Here's our report from the federal courthouse in Seattle, where Johnston and Jones made their initial appearances this afternoon.

UPDATE: The Entellium Web site is completely stripped down, only showing a few product pages. Gone are the executive bios, press releases, media center and other features.

UPDATE: Gene Johnson of the AP provides a good overview, quoting a frustrated Entellium shareholder and former employee. "When you raise $50 million — $50 million — doesn't anybody ever do an audit?" asked former Entellium employee Barry Abraham.

UPDATE: In a post called "Venture companies gone bad," Avvo's Josh King puts together a list of some of the past quotes from Johnston and Jones discussing the promise of Entellium's business. Included is Johnston's apparent secret to success, described in this bio as: "Sell customer gratification, not things." Interestingly, Avvo is backed by Ignition Partners, the same venture firm that appears to have been fleeced in the Entellium deal.

UPDATE: Here's the latest in the ongoing Entellium saga. We’ve learned that Moss Adams, the accounting firm for Entellium, says it never completed a full audit of the Seattle software startup. The information comes a day after top two executives were charged with wire fraud in federal court Wednesday for allegedly “cooking the books” at the software startup.