Ex-Cabletron execs settle SEC civil charges

Two top executives of former Cabletron Systems settle civil securities fraud charges with the SEC Commission without having to pay any penalty.

Two top executives of the former Cabletron Systems have settled civil charges of securities fraud with the U.S. Securities and Exchange Commission without having to pay any penalty, while the SEC pursues monetary civil damages against a low-level executive who has already served time.

On Jan. 16, a federal judge approved the SEC settlement with former Cabletron’s former chief operating officer Jerry Shanahan and approved a similar settlement with Eric Jaeger, a former vice president. The settlement — after eight years of litigation — enjoins the executives from not engaging in securities fraud in the future, without admitting that they did so in the past. Neither official is barred from employment as an officer or director in publicly traded companies in the future.

Meanwhile, the SEC last week made a motion for a default judgment against David Boey, former comptroller of Cabletron spinoff Enterasys Networks’ Asia-Pacific division, the lowest-ranking person to be charged criminally and civilly in the largest accounting fraud in New Hampshire history.

The scandal involved the former Rochester company, which was once the state’s largest employer. The fraud stems from Cabletron’s spinoff in 2001 of Enterasys. Federal authorities accused top executives of using accounting tricks to inflate revenue to increase the stock value of their options, and conspiring to hide fraudulent deals from auditors, and therefore investors.

Boey served three years, leaving prison in March 2010.

The SEC motion asks that Boey pay more than $205,000 in disgorgement, interest and civil penalties.

“The fact that the people at the top got off while they go after Boey is laughable,” said Gayle Spence, former director of worldwide sales for Cabletron, who herself pleaded guilty to conspiracy and spent two years in prison after cooperating with authorities.

Jaeger’s attorney Jonathan A. Shapiro said his client was “thrilled that the matter has concluded,” but he would not comment further.

As for Shanahan, he was “vindicated” by the settlement, said his attorney, Andrew Good.

The SEC would not comment on the settlements.

The Cabletron/Enterasys scandal blemished the political career of Craig Benson, who later went on to serve a term as New Hampshire governor. Benson was never charged with any fraud, but many of those who worked with him were.

Four Enterasys executives — including Boey — were convicted of criminal fraud. Enterasys CFO Bob Gagalis is currently serving in the new Berlin federal prison and isn’t scheduled to be released until August 2017.

In the aftermath, Enterasys was acquired by a private equity firm at a bargain price and is thriving in Salem.

Categories: Law, News