Risk Management

Sentencing Starts for Former Enterasys Finance Execs

The charges stemmed from a revenue-recognition scheme that involved altering and backdating contracts and entering into secret side deals.
Stephen TaubJune 29, 2007

Two of four former Enterasys Networks finance executives who expected to be sentenced to prison terms on Friday for their role in a revenue-recognition scheme have learned their fate.

Late last year, the ex-executives were convicted by a federal jury on securities fraud and conspiracy charges that stemmed from a scheme that involved altering and backdating contracts and entering into secret side deals. They also were charged with making false representations in filings to the Securities and Exchange Commission in company press releases, and to the company’s outside auditors, according to the Justice Department’s original indictments.

Enterasys, which makes routers and switches for corporate networks, was the surviving company following a 2001 merger with Cabletron Systems. Last year Enterasys was acquired by The Gores Group and Tennenbaum Capital Partners for about $386 million. It later went private.

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Hor Chong Boey, controller of the Asia Pacific region, was sentenced on Friday to three years imprisonment, according to The New Hampshire Union Leader. Boey, who was convicted of conspiracy and wire fraud, has 10 days to appeal.

NH.com, which encompasses a number of publications, notes that U.S. District Court Judge Paul Barbadoro referred to Boey as being similar to the low man on the totem pole in the conspiracy, and therefore gave him a sentence that was less than the suggested minimum under federal sentencing guidelines. The judge acknowledged that Boey probably faced pressure from higher-ups to participate in the scheme.

The paper notes that during a break in the trial, accountant Robert Barber reached a negotiated settlement, which reportedly calls for him to serve five years on one count and eight years and one month on three other counts, to be served concurrently. He was also fined $25,000 and waived his right to appeal the convictions and the sentencing.

“I deeply regret the harm that I have done to my family and friends,” Barber reportedly told Barbadoro. “I also never meant to harm anybody who has a financial loss. That was never my intention, sir.” The judge then reportedly replied, “I don’t think you set out to harm anyone. You need to know that your crime was a very serious one and the consequences are grave. This sentence is an appropriate one.”

Former CFO Robert Gagalis and former senior vice president of finance Bruce Kay were also scheduled to be sentenced Friday afternoon.

The judge said the most culpable person in the scheme was former chief executive officer Enrique Fiallo, who in 2004 pleaded guilty to a federal charge of conspiracy to commit securities, mail, and wire fraud, and agreed to cooperate with prosecutors. In October, he is expected to be sentenced to five years in prison, according to the news report.