Canopy Smells Like Entellium, which Resulted in CEO & CFO Doing Time

As Jeff Bussgang pointed out in his column today, the alleged fraud at VC-backed Canopy Financial is reminiscent of the fraud case at VC-backed Entellium last year. In that case, the former CEO and CFO were sent to prison in March for wire fraud and lying to investors (including Ignition Partners and Intel Captial) about their company’s actual revenue.

Former Entellium CEO Paul Johnston was sentenced to three years in prison and a little over $2 million in restitution, while former CFO Parrish Jones was sent away for two years and ordered to make restitution of more than $850,000.

Once they get out of prison, the pair also have to serve 80 hours of community service in a homeless shelter or soup kitchen.

Venture Capital Journal published a story last year after the Entellium case broke, questioning whether VCs could have done anything to prevent the fraud. Since it’s Friday, dear HUB readers, I’m making the story free today. Read it here.

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5 Comments

  • The difference is that CEO Vik was not, so far, named by the FBI. The report seems to say that the Canopy CEO and general counsel told investors about the fraud as soon as they knew about it on November 5. Sure that could change, but it’s not the same as Entellium vis-a-vis the CEO role. What I don’t get is whether anybody besides Blackburn (and staff) was duping the VCs.

    Bill Boyles, Consumer Driven Market Report, Washington

  • It’s sad. more than 80 employees were tricked into signing separation agreements, where Canopy Financial agreed to pay severance and PTO out to employees and now they are using the excuse of chapter 11 to not pay out what they initially agreed on.

  • What happened to due diligence seems like no one did any.

  • Hard to imagine that no one ever talked with the accountants during due diligence (or that the board had not had a separate audit committee meeting with them when the audit was issued, assuming the Board had seen it).

  • It is now clear in both cases fraud occurred. Due diligence on financials and even legal contracts is one thing. Our experience is that the use of an independent, third party to perform technology and market due diligence can provide a strong antidote to misleading numbers.

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