Accounting & Tax

Enterasys Ex-Exec Settles with SEC

''Undisclosed side agreements'' were part of a revenue-recognition scheme.
Stephen TaubFebruary 7, 2007

Gary M. Workman, former president of the Asia-Pacific division of Enterasys Networks, has agreed to settle civil fraud charges in connection with improper revenue recognition at the company, according to the Securities and Exchange Commission.

Without admitting or denying the SEC allegations, Workman agreed to pay disgorgement of $165,241 and prejudgment interest of $40,231, reflecting the full amount of his illegal gains, and a civil penalty of $20,000.

The commission alleged that from March 2000 to December 2001, Workman participated in a companywide scheme to fraudulently inflate revenues at Enterasys, which makes computer network hardware, and at its former parent company, Cabletron Systems.

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Specifically, according to the SEC, Workman directly participated in transactions that involved undisclosed side agreements in which the purchaser of Enterasys products was granted full return or exchange rights, or payment was contingent upon the purchaser’s resale of the product, or payment was contingent upon an investment by Enterasys. In that third scenario, stated the commission, Enterasys would agree to take a debt or equity interest in a customer, which would use those funds to purchase products from Enterasys.

The SEC noted that Workman also pleaded guilty to one count of wire fraud and agreed to cooperate with the U.S. Attorney’s Office for the District of New Hampshire.

Former assistant controller Anthony L. Hurley settled related civil and criminal charges last week. Hurley, too, is cooperating with federal prosecutors.

In December, four former executives of Enterasys — chief financial officer Robert Gagalis; senior vice president of finance Bruce Kay; Robert Barber, an accountant; and David Boey, who headed the company’s Asia-Pacific sales force — were convicted by a federal jury on securities fraud and conspiracy charges stemming from the revenue-recognition scheme.