Enterasys trial postponement sought

Lawyers for former Enterasys Networks executives on trial for securities fraud are asking that the March 7 trial be postponed because federal prosecutors are interfering with the defense by instructing Enterasys not to pay the defendants’ legal costs and preventing access to prosecution witnesses, according to a motion filed Feb. 22.

The lawyers discovered this alleged complicity – the attorneys say – in a Feb. 16 filing by Enterasys in a dispute with the company’s insurers over criminal defense costs. That dispute, coincidentally, goes to trial March 6, the day before the criminal trial begins.

In the criminal trial, Enterasys’ former chief financial officer, Robert Gagalis, and its former chief operating officer, Jerry Shanahan, and three other executives are charged with a conspiracy to fraudulently inflate revenue when Cabletron Systems – once the state’s largest employer – spun off Enterasys in 2001.

Under its corporation papers, Enterasys is required to advance legal fees to its officers and, the attorneys contend, the company has not kept current on its payments.

In the insurance dispute, the government said that Enterasys was obligated to refrain from paying legal costs as part of the company’s settlement with the Securities and Exchange Commission to cooperate with future governmental investigations.

This has caused hardship for the defense, particularly for Shanahan, a native of Ireland, who has to repeatedly fly to Boston and New Hampshire to prepare his defense, the attorneys said.

But Enterasys attorney Harvey J. Wolkoff, of the Boston firm of Ropes and Gray, said that Enterasys was fulfilling its obligation. It had already advanced some $2 million in legal fees, but the defense attorneys were simply asking for too much money. Gagalis’ fees alone, he contended, amounted to $4 million.

Enterasys — which was about to be sold to some private investors – was still a “public company. We are obligated to pay legal fees, but we just can’t fritter away stockholders’ money for whatever these lawyers want to charge.”

Defense lawyers also contend they have been unable to get access to a number of Enterasys’ witnesses who pleaded guilty to lesser charges – including former Enterasys CEO Enrique “Henry” Fiallo – as well as officials of KPMG, the company’s former accounting firm.

They are asking the federal court to subpoena the witnesses for depositions and are demanding documents relating to communications and agreements between Enterasys and the government. This is another reason to postpone the start of the trial, the defense contends.

Wednesday’s motion was one of a last-minute flurry of pretrial motions.

Defendant Robert Barber – former director of business development at Cabletron and a former Enterasys consultant – is asking that his trial be severed from the rest because prosecutors agreed to exclude some of his e-mails relating to Riverstone, a smaller Cabletron spinoff, at the request of Shanahan’s attorneys. Barber’s lawyers said that some of these e-mails helped his case, and that they should either all be put into evidence or be totally excluded. – BOB SANDERS

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