Risk Management

Ex-Enterasys Execs Sing, Face Sentencing

Lighter sentences expected for employees who testified against the former CFO and others in the finance department.
Stephen TaubAugust 28, 2007

Prosecutors are asking a judge to go lightly on Wednesday when he sentences three former executives of Enterasys Networks who testified against the former CFO and the former senior vice president of finance, as well as two other employees, in a criminal securities fraud case.

According to the New Hampshire Business Review, Gary Workman, the head of the firm’s Asia Pacific division; former comptroller Anthony Hurley and Gayle Spence, an assistant to former Enterasys president Enrique “Henry” Fiallo, will learn their fate from U.S. District Court Judge Paul Barbadoro, who oversaw the trial of five other former executives and employees of Enterasys last December. The three individuals scheduled to be sentenced on Wednesday testified at that trial.

Back in December, 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 were convicted by a federal jury on securities fraud and conspiracy charges stemming from a revenue recognition scheme, according to the Associated Press. The charges stemmed 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.

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

Back in May 2004, Hurley and Workman pleaded guilty to wire fraud. In September of that year, Fiallo pleaded guilty to a federal charge of conspiracy to commit securities, mail, and wire fraud.

The New Hampshire Business Review noted that Workman’s testimony may have hurt the prosecution. Therefore, prosecutors did not ask for a lower sentence, but rather recommended that he receive the low end of the scale for wire fraud, 57 months, which is just a few months fewer than the five-year cap Workman agreed to in his plea bargain.

However, prosecutors have recommended that Hurley’s sentence be cut by more than two-thirds, to between 18 and 24 months, and that Spence receive between 27 and 33 months, according to the paper.

Fiallo is not scheduled to be sentenced until October, according to the report.

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 approximately $386 million. It subsequently went private.