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Entellium founder Paul Thomas Johnston is scheduled to be released from a federal prison in California today, closing the chapter on one of the darkest moments in Seattle startup history. The 43-year-old former Internet executive was sentenced to three years in prison for misrepresenting financial figures and lying to investors, a financial fraud that captivated the startup community for months and scarred employees and investors indefinitely.

Entellium’s chief financial officer, Parrish Jones, who was also charged in the crime, was released earlier this year.

The fraud started to unfold in September of 2008 when a human resources employee at Entellium discovered a false set of “board books” which showed inflated sales figures. For 2007, the books showed revenue of $6.2 million, when in fact actual revenues stood at just $1.4 million.

The fraud stirred the Seattle startup community as Entellium — a company that had raised some $50 million from Ignition Partners, Sigma Partners and others — unraveled. Full audits of the company were never completed as Johnston’s lies continued to add up.

Entellium eventually closed its doors, selling off the assets of the business to Intuit in a bankruptcy auction. (The company’s old office space is now occupied by fast-growing Cequint, one of the region’s more noteworthy successes).

A spokeswoman for the Bureau of Prisons confirmed that Johnston was to be released today. However, his next steps are unknown. (See update below).

Johnston is a citizen of the United Kingdom, and a federal judge noted at the time of sentencing that he would likely be deported after his release. We’ve reached out to the U.S. Immigration and Customs Enforcement spokeswoman to get more details, and we’ll update the post when we learn more.

Paul Gombiner, the public defender who represented Johnston during the trial, declined to comment.

At the time of sentencing, Assistant U.S. Attorney Carl Blackstone said that Johnston and Jones had only themselves to blame.

“They put their own selfish interests ahead of their employees,” Blackstone said.

Many of the investors and employees who were entangled in the Entellium mess have moved on. But the tale does serve as cautionary reminder of how things can quickly implode if you lie, cheat and steal.

UPDATE: A U.S. Immigration and Customs Enforcement spokeswoman tells GeekWire that Johnston did leave Taft Correctional Institution today, and he is now being held in Bakersfield pending deportation. On May 10th, an immigration judge issued an order of removal from the U.S.

“We are in the process of affecting his removal from the U.S. as soon as possible,” said Lorie Dankers, a public affairs officer with U.S. Immigration and Customs Enforcement.

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