Enterasys case dismissed
The U.S. Attorney’s Office in Concord has dropped all criminal charges against former Enterasys Networks executive Jerry Shanahan.
“There will be no further prosecution of Mr. Shanahan nor will any related to his work at Enterasys be pursued,” Assistant U.S. Attorney Robert Kinsella told NHBR.
Kinsella asked Aug. 10 that the case against Shanahan be dismissed, following a U.S. Supreme Court decision on an Enron official’s securities fraud case. The ruling backed Shanahan’s contention that he was unconstitutionally being tried for the same office twice.
Shanahan, former chief operating officer of Enterasys, and four other former executives of the firm – including chief financial officer Robert Gagalis — were charged and tried in 2006 for allegedly conspiring to inflate revenue in 2001, when the company was being spun off from Rochester-based Cabletron Systems, once the state’s largest employer.
While the jury convicted the others, they acquitted Shanahan on one count and could not reach a decision on the others.
In October 2007, prosecutors obtained another indictment on essentially the same charges.
Key to those charges was a side e-mail sent by Shanahan to an Enterasys distributor, Tech Data Canada. The e-mail contained terms that were taken out of the main contract, ones that would have precluded revenue recognition and allowed Tech Data to return products that it couldn’t sell in 90 days.
Shanahan’s attorney, Andrew Good, argued that that jurors who acquitted his client on the Tech Data count must have concluded that prosecutors could not prove criminal intent to conspire to raise revenue.
Civil suit remains
Prosecutors argued that the defendant would have to prove the jury’s intent, according to previous decisions by the U.S. Court of Appeals in the First District, which includes New Hampshire. But other federal appeals courts had ruled otherwise, and to resolve the conflict, the U.S. Supreme Court heard Yeager v. United States, involving an Enron executive in the same legal dilemma as Shanahan.
Both sides in the Enterasys case agreed to put the case on hold until Yeager was decided. On June 18, the court ruled in the former Enron executive’s favor.
Shanahan is not entirely off the hook. In February 2007, the U.S. Securities and Exchange Commission filed civil charges against him and nine other executives — including Gagalis and former Cabletron chief executive Piyush Patel — for inflating revenue at both Cabletron and Enterasys. Indeed, it said that Patel, former Cabletron chief financial officer David Kirkpatrick and Eric Jaeger led the conspiracy.
The four convicted criminal defendants either accepted or defaulted on the civil charges. Shanahan and the five other defendants fought them, arguing that the charges were not specific enough, nor the amount of fraud involved material enough, to support the charges.
U.S. District Court Judge Steve McAuliffe agreed and threw out charges in March 2008 without prejudice, meaning the SEC had another shot at restating its case, which the government did in September 2008. McAuliffe, however, did not like the result and had planned to give the government one more chance to plead its case orally last month.
Bob Sanders can be reached at email@example.com.