Citing Supreme Court ruling, ex-Cabletron exec seeks dismissal of charges

Attorneys for Eric Jaeger, a former vice president and top attorney of Cabletron Systems, argued Monday that a U.S. District Court judge should dismiss securities fraud charges against him because of a recent U.S. Supreme Court decision.Jaeger was charged with falsifying books and participating in a scheme to inflate revenue for his involvement in three transactions that were part of a larger “scheme” to inflate revenues in 2001, according to charges by the U.S. Securities and Exchange Commission.The deals involved were so-called three-corner deals in which Cabletron and its spinoffs would invest in shaky companies. The money would be used to buy Cabletron products that the companies didn’t need as a way to inflate Cabletron’s revenue.U.S. District Court Judge Steven McAuliffe ruled last August that there was enough specific evidence that Jaeger participated in the deals for the case to move forward. But on Monday, Jaeger’s attorneys argued that a Supreme Court decision last September in a securities fraud case against an AOL executive found that participation in the deals wasn’t enough to warrant fraud charges.”It is the manner in which these transactions were accounted for by AOL and reported to the public … that is deceptive, and not the act of engaging in such transactions itself,” the high court ruled.In Monday’s motion, Jaeger’s attorneys contended that the SEC’s own experts admitted that the three-corner deals are not “inherently” deceptive. What would be deceptive — under the latest Supreme Court decision — is the manner in which the transactions were accounted for and reported to the public.”It was Enterasys’ misstatement of revenue from the transactions, not the transactions themselves, that was deceptive,” according to the motion. The attorneys are asking for oral arguments before the court to make their case.But last August, McAuliffe didn’t just cite evidence that Jaeger for being involved in the transactions, he said there was evidence that Jaeger “controlled or had substantial influence over which documents were provided to outside auditors,” and at one point “dictated to the CFO of Enterasys what documents should not be given to the outside auditor.”McAuliffe, however, made it clear that prosecutors needed more than evidence. They would still have to prove their case.Jaeger and former Cabletron chief operating officer Jerry Shanahan are the only two defendants remaining in the SEC civil securities fraud case against Cabletron, which was once New Hampshire’s largest private employer.Executives of Enterasys Networks — Cabletron’s main successor — have gone to jail on criminal charges that they conspired to inflate revenue during the 2001 spinoff of Enterasys from Cabletron. Four were convicted by jury, while the rest pleaded guilty. — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW