Risk Management

Four Former Enterasys Execs Convicted

Ex-finance executives are found guilty of altering contracts and falsifying SEC documents.
Stephen TaubDecember 20, 2006

Four former executives of Enterasys, including three former finance executives, were convicted by a federal jury on securities fraud and conspiracy charges stemming from a revenue recognition scheme, according to the Associated Press. The jury was unable to reach a verdict on five charges against the company’s former chief operating officer, according to the report.

The four individuals who were convicted include former chief financial officer Robert Gagalis, former senior vice president of finance Bruce Kay, one-time accountant Robert Barber, and David Boey, who headed the Asian Pacific sales force in the company’s Singapore office. In aggregate, the individuals were convicted on 27 of 39 conspiracy, securities, and wire fraud charges, according to the AP. The securities fraud charges are each punishable by up to 10 years in prison, while conspiracy can draw up to five years in prison and a $250,000 fine, noted the wire service.

The charges stem from a scheme that involved altering and backdating contracts, entering into secret side deals, and making false representations in filings to the SEC, 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. Earlier this year, Enterasys was acquired by The Gores Group and Tennenbaum Capital Partners for approximately $386 million. It subsequently went private.

Former chief operating officer Jerry Shanahan was acquitted on one count of securities fraud, according to the AP. No verdict was returned on a wire fraud charge, three other securities fraud charges, and a conspiracy charge.

According to the AP, four other former executives had cooperated with prosecutors and were scheduled to be sentenced after the trial ended. They are one-time chairman, president and chief executive officer Henry Fiallo, former vice president and director of internal sales Gayle Spence Luacaw, former assistant controller Anthony Hurley, and Gary Workman, the one-time president of the company’s Asia Pacific region.

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