Enterasys prosecution rests; defense likely won't call witnesses

The five former Enterasys Networks executives charged with securities fraud don’t plan on putting up much of a defense, which means that the case will probably go to the jury by the end of the week.

After the prosecution rested its case Monday — almost a month after the trial opened in U.S. District Court in Concord — attorneys for all but one of the defendants said that they would not be calling any witnesses, including their clients. Only former chief operating officer Gerry Shanahan might take the stand, said his attorney Andrew Good, who declined comment.

“The government hasn’t made its case. That’s obvious,” explained William Cintolo, an attorney for David Boey, the head of the Asia Pacific division.

Attorneys for the other former executives – Robert Gagalis, Bruce Kay and Robert Barber — would not comment about why their clients weren’t taking the stand.

The move seemed to surprise Judge Paul Barbadoro, who said that he previously understood that the defense attorneys – who had listed more than 80 potential witnesses and said that each defendant would at least have several days of testimony at the beginning of the trial. Defense lawyers did tell Barbadoro that they would introduce some evidence to the jury before both sides began closing arguments on Wednesday or Thursday.

The government has charged that the five defendants conspired with other executives – four of whom have pleaded guilty, including former CEO Enrique “Henry” Fiallo – in lying to the public by violating accepted accounting practices in order to boost revenue for the quarter in 2001 when Enterasys was spun off from Cabletron Systems, a Rochester-based firm that was once the state’s largest employer.

A handful of investors bought Enterasys last spring at a fraction of the company’s value at the time of the spinoff, resulting in the loss of more than $1 billion to shareholders.

Defense lawyers spent the morning trying to shake the testimony of David Wilson, an auditor from KPMG. On Friday, Wilson testified that he told Kay, as well as two other executives that the practice of investing in shaky companies that use the cash immediately to buy Enterasys products through a distributor could result in improper revenue recognition. Wilson testified that there were two such deals in the quarter ending in June, and Enterasys improperly recognized some $11 million in revenue from three similar deals the next quarter.

Kay’s attorney, Bruce Singal, questioned whether Wilson could remember what was told to Kay and the other executives nearly six years later. He also noted that Kay was not very involved in the deals involved.

“To correct it, he would have to know that something was wrong,” Singal said.

Barbadoro gave the jury a day off today, as both sides make their final motions and preparations before the trial goes to the jury. Good is suppose to announce whether Shanahan will testify on Wednesday. If not, the jury either hear the attorneys making their closing arguments. – BOB SANDERS

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