Enterasys: SEC takes another stab at Shanahan



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Federal attorneys want a U.S. District Court judge to do what a jury would not: rule that former Enterasys Networks chief operating officer Jerry Shanahan tried to hide terms of an agreement from auditors in order to inflate revenue during a crucial quarter in 2001, when Cabletron Systems was spinning off the company.On Wednesday, attorneys for the Securities and Exchange Commission on Wednesday filed for a summary judgment against Shanahan in a civil case, arguing that "the undisputed facts establish that Shanahan secretly overrode the advice of accountants and concealed contract terms in a side agreement to deceive the accountants and auditor, causing them to improperly include the $3 million in revenue from Tech Data Canada in Enterasys Networks Inc.'s quarterly report."A federal jury acquitted Shanahan of doing just that in December 2006, and that acquittal prevented prosecutors from trying him again on other criminal charges that the jury could not reach a decision on. Those criminal charges were dropped in August 2009.That same jury convicted four other defendants, but jurors later told NHBR that they were reluctant to convict Shanahan, who never was an accountant, for an accounting crime. Shanahan, an Irish national, went back to Cork a free man.But in February 2007, SEC attorneys filed a much broader civil case against 10 defendants, including Shanahan. But after a federal judge threw out half of the charges, and after various settlements, the only ones still fighting are Shanahan and Eric Jaeger, who was the company's chief counsel.Shanahan still faces three of the original seven counts against him, and they have been restricted to three, if not two, specific transactions.The motion for a summary judgment only focuses on the Tech Data transaction, a $3 million purchase agreement reached in August 2001. However, the agreement contained terms about return policy which would have precluded counting the deal as revenue.Tech Data wouldn't go ahead with the deal without those terms, so Shanahan allegedly sent an email confirming the terms on Aug. 29, a few days before the quarter closed. The agreement went to the auditors, but that reassuring email did not, federal lawyers allege, so the auditors didn't learn about the side agreement until 2002.Federal attorneys argued that the evidence presented in various emails and statements prove the government case without going to trial. Shanahan's attorneys have yet to respond to the motion.Cabletron, co-founded by Craig Benson -- who went on to serve a term as New Hampshire governor -- was once the state's largest employer. But the company was on the decline in 2001, and Enterasys, hurt by the accounting scandal and continued high tech crash, ended up being sold to a private equity firm and moved into Massachusetts, where it concentrates on network security issues. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW Edit ModuleShow Tags