Enterasys defense continues grilling of government witness

Defense lawyers representing former Enterasys Networks executives on trial for securities fraud continued to pound away at the creditability of the government’s first witness on his last day of testimony Tuesday in US District Court in Concord.

Attorneys questioned Gary Workman, the former president of Enterasys’ Asia Pacific Division, about whether he destroyed evidence and committed perjury.

But Workman, in explaining why he pleaded guilty to one count of wire fraud in exchange for his testimony against his alleged co-conspirators, said he only wanted to “fess up” and “take responsibility … for being an active participant and for directing what happened.”

Prosecutors are charging that the five defendants participated in a conspiracy to inflate revenue during Enterasys’ first quarter in 2001, after it spun off from Cabletron Systems, once New Hampshire’s largest employer based.

Workman’s three days of testimony primarily focused on one deal with Ariel International that closed hours before the quarter ended at midnight on Aug. 31, 2001. Workman, allegedly under “intense” pressure from one defendant — former chief operating officer Jerry Shanahan — agreed to very liberal terms in the deal.

After being questioned about the terms in mid-September 2001 by defendant Bruce Kay, then vice president of finance, Workman ordered his sales director – David Boey – to “take care of it.”

Boey then allegedly put the problematic terms in a secret side agreement to which Workman agreed in order to improperly record the $3.9 million sale as revenue.

On Tuesday, Bruce A. Singal, Kay’s attorney, focused on what happened to Workman’s laptop on Feb. 2, 2002, after auditors discovered the secret side agreement.

The previous day, Shanahan had told Workman and Boey to report to Rochester headquarters from Singapore. Workman testified that he didn’t know what the meeting was about until learning en route that Enterasys had issued a press release about a Securities and Exchange Commission investigation into a $4 million deal in the Asia Pacific region.

It was that release that caused Enterasys stock to tumble as the company became engulfed in an accounting scandal, which lasted until the firm was sold to private investors earlier this year.

Despite having his laptop the entire trip, Workman said, he couldn’t remember opening it up until he was in a Rochester conference room with Shanahan, where, he said, he found that every file “appears to be deleted.”

Workman said that the first thing he said to Shanahan was that “he didn’t do it.” The laptop was confiscated, and Workman and Boey were placed on administrative leave. Both were later fired.

Later, Workman told SEC investigators, according to transcripts read into the record by Singal, he was “shocked” by the missing files, and he discovered it before he learned of the nature of the inquest.

But Singal challenged Workman’s story. First, he said that Workman lied to SEC investigators, because he already knew what he was called in for when he discovered the missing data. Second, he confronted Workman with an e-mail he wrote, allegedly on the laptop, shortly after he arrived in Rochester, showing that it was functioning.

He questioned Workman if he knew about deleting files and trying to cover it up by defragmenting the hard drive. Workman said he didn’t.

“Isn’t that what you did to this laptop on Feb. 2?” Singal asked.

“I did not,” Workman said.

Singal also tried to establish that Kay didn’t receive any of the e-mails that discussed the secret side letter.

Most of the questioning yesterday came from Willliam Cintolo, an attorney for Boey. Cintolo emphasized Workman’s role in approving and overseeing the side letter while traveling in Australia, even after Workman thought it was improper.

“Did you at any time ever tell him that this was improper and might be illegal?” Cintolo said.

“I did not,” Workman answered.

Cintolo noted that Workman admitted that he told a “big lie” in front of the SEC investigators, even though he was under oath.

“It was perjury wasn’t it?” he said. Workman admitted that it was, but later said that he wasn’t being charged because of a plea agreement with the U.S. attorney’s office. – BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

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