A group of 14 investors who lost nearly $1 million on Entellium are suing former executives of the Seattle software company for allegedly selling securities based on fraudulent accounting data.

The lawsuit -- filed in King County Superior Court on January 14 -- names former Chief Executive Paul Johnston, former Chief Financial Officer Parrish Jones and former Vice President of Customer Experience Terry Murphy as defendants. Johnston and Jones pleaded guilty to wire fraud last month for inflating revenues at the maker of customer relationship management software. Both are awaiting sentencing in March.

"Entellium, by and through its agents and representatives, failed to institute processes to ensure that financial statements made by the CEO and CFO of Entellium were not materially deceptive or grossly inaccurate," the suit says.

In a business update last June -- less than four months before the fraudulent activities were discovered -- Johnston allegedly told investors that Entellium had a valuation of $350 million, according to the complaint. In that same update, he also projected revenue for the first quarter of 2009 at $3.9 million and for the second quarter of $5.2 million, the complaint says. Profitability was promised by Johnston in the second quarter of 2009.

"Defendants engaged in a scheme to overstate Entellium's revenues to defraud existing and potential shareholders into investing in Entellium," the complaint says. It also alleges that the investors were given tours of the company 's headquarters and were told that the business -- in the words of Johnston -- "continues to show solid progress." The lawsuit alleges fraud, negligence and breach of contract. And it alleges that Johnston, Jones and Murphy violated the Washington State Securities Act; the Criminal Profiteering Act and the Consumer Protection Act.

The 14 plaintiffs allege that they invested a combined $920,000 in Entellium, but failed to receive shares in the company. And they ask the court for a "constructive trust over all company assets" as well as civil penalties of $250,000 per each violation of the Criminal Profiteering Act.

The plaintiffs include residents of California, Montana and Washington who purchased between 27,777 shares and 575,000 shares between December 2006 and march 2008. They include Jeffrey Esfeld; Peter Anderson; Bruce Glant; Steve Lewis; Gary Stratiner; David Cassius; Jens Gran; Tim Moriarty; Drew Thoresen; William Houck;  Gary Schuster; Michael Esfeld; Robert Kornfeld; and Dennis Shay.

The lawsuit is the latest twist in a case that has captivated Seattle's startup community. And it comes as the company's Chapter 11 bankruptcy proceedings wind down. Bankruptcy judge Karen Overstreet last week approved the sale [PDF] of Entellium with certain restrictions, while former employee Leif Jensen has settled his lawsuit with the company in order to receive severance of $9,669.

Because the bankruptcy proceedings appear to be ending, the latest investor lawsuit comes at an interesting time. I have a call into plaintiffs' attorney Roger Townsend to ask why the investors filed the lawsuit now and what his clients hope to gain.