Ex-Cabletron exec reaches tentative settlement with SEC

Eric Jaeger, Cabletron Systems' former top lawyer, has tentatively settled charges of securities fraud with staff from the Securities and Exchange Commission, postponing a trial that was scheduled for next month in Concord. U.S. District Court Judge Steven J. McAuliffe moved the trial date from Nov. 14 to Jan. 11 to give time for the tentative settlement with the SEC staff to be approved by the agency. Terms of the settlement were not disclosed.

If approved, Cabletron's former chief operating officer, Jerry Shanahan, would be the only remaining defendant in a civil trial that once involved 10 executives from the company and its spinoffs who were involved in a scheme to inflate revenue, using various accounting tricks to drive up the former Rochester-based company's stock price back in 2001.At the time, Cabletron – once New Hampshire's largest employer — spun off Enterasys Networks Inc. and two other companies.

Four of those former executives – including former Cabletron CEO Piyush Patel and chief financial officer David Kirkpatrick – have already settled with the SEC. The SEC had identified Patel, Kirkpatrick and Jaeger as leaders of the conspiracy to commit fraud.

Four others who been tried in 2006 with Shanahan on similar criminal charges involving Enterasys — and later sentenced to long terms in federal prison — did not contest the civil charges. But the jury acquitted Shanahan of most of the criminal charges, and prosecutors eventually dropped the rest.

Last week, Shanahan revised a motion to dismiss the civil charges, and the court scheduled his trial to Jan. 11 to give it time to consider the 30-page argument.

The SEC charged that the executives inflated revenues by using so-called three-corner deals in which Cabletron and its spinoffs would invest in shaky companies and then use those investments to buy Cabletron's products through a third-party distributor, without telling auditors.

Cabletron would also count as revenue product sold with liberal return terms (which would prohibit those transactions from being counted as revenue) and without disclosing those terms.