Ex-Enterasys executives charged
Indictments allege accounting fraud in $4.5m scheme
boston.com
By Bloomberg News | May 20, 2004
NEW YORK -- Enterasys Networks Inc.'s former chief financial officer, Robert G. Gagalis, and two other former executives of the maker of computer-networking equipment have been charged with a $4.5 million accounting fraud.
Federal prosecutors in New Hampshire said yesterday in a statement that they have obtained indictments of Gagalis, former vice president of finance Bruce D. Kay, and former executive vice president Gayle Spence. The attorneys for Gagalis and Kay said their clients are innocent.
Gary M. Workman, ex-president of the Andover company's Asia-Pacific sales division, has pleaded guilty to related charges, according to the US attorney's office in New Hampshire. Enterasys shares dropped 82 percent in 2002 after the company restated most results from 2000 and 2001 and the US Securities and Exchange Commission started an investigation.
"The alleged scheme involved altering and backdating documents, entering into secret side deals, and making false and misleading statements in filings with the US Securities and Exchange Commission," the US attorney's office said in the statement.
"Mr. Gagalis denies any of the allegations of wrongdoing and very much looks forward to being exonerated," his lawyer, David H. Kistenbroker, said.
Gagalis, 49, resigned as chief financial officer in July 2002.
The company, then based in Rochester, N.H. , fired three employees in February 2002 in its Asia unit for improperly booking sales, and replaced its chief executive.
The company reached an agreement ending the SEC probe in February 2003. Without admitting wrongdoing, Enterasys agreed to appoint an auditor to report directly to a committee of its directors. It paid no fines.
"All of the executives involved in these issues are no longer involved with the company," current chief executive William K. O'Brien, 59, said in an interview. "These matters are between the individuals and the government, not between the company and the government." The criminal case involves two transactions that resulted in improper overstatements of revenue. One was a $3.5 million agreement entered into on Aug. 31, 2001, a day before the close of Enterasys's fiscal quarter, Assistant US Attorney Bill Morse, 42, said in an interview. The second transaction, in December 2001, resulted in an overstatement of $1 million, he said.
"The decision by the US attorney to bring these charges against Bruce Kay reflects a gross misjudgment as to prevailing accounting standards in 2001," Kay's lawyer, Lloyd Macdonald, said in a statement.
"Mr. Kay categorically denies that he had any knowledge of material misstatements in the financial reports of Enterasys during the time that he was an officer of the company."
Linda DeBene, the lawyer representing Workman, 57, declined to comment.
A lawyer for Spence, 45, didn't immediately return a call seeking comment. |
