Four ex-Cabletron execs settle with SEC

Piyush Patel, the former chief executive of Cabletron Systems, David Kirkpatrick, the former chief financial officer, and two other former executives have reached a tentative settlement with the Securities and Exchange Commission relating to fraud charges involving Cabletron and its 2001 spinoff of Enterasys Networks.Terms of the settlement were not disclosed in a filing in U.S. District Court in Concord.But the SEC appears to be moving forward without settlement against Cabletron’s former in-house attorney, Eric Jaeger, the other alleged leader of the scheme to mislead investors by using several accounting tricks to inflate revenue.The SEC filed some 80 documents in response to Jaeger’s motion to dismiss civil litigation, which has languished since it was first filed in February 2007.The SEC’s civil case is the last chapter in a long legal ordeal that has plagued Cabletron, Enterasys and their shareholders, dating back to when they were public companies based in Rochester.Cabletron, founded by Craig Benson (who later went on to serve a term as the state’s governor) had once been the state’s largest employer. But after the disastrous spinoff, the company, mostly re-emerged as Enterasys, became a shadow of itself, sold for a fraction of what it was once worth, to a private equity firm and moved out of state.The Cabletron/Enterasys accounting scandal eventually resulted in eight executives being sent to prison, four of whom were convicted by a jury in 2006.But those charges were all in conjunction with their role in Enterasys, and not Cabletron.Former Enterasys executive Robert Gagalis, who was sentenced to 10 1/2 years in federal prison, and others argued that the practices at Enterasys stemmed back to Cabletron, and particularly blamed the top three Cabletron executives, Patel, Kirkpatrick and Jaeger – who never faced criminal charges.The SEC pursued civil charges against the trio and two other former Cabletron executives, alleging a broader conspiracy that dates back before the spinoff, and lists a much longer list of allegedly fraudulent transaction.The civil charges named the aforementioned big three, the criminal defendants and former Enterasys comptroller Lawrence Collins and Michael Skubisz, CEO of Aprisma, another Cabletron spinoff.Both Collins and Skubisz made settlement offers that were tentatively accepted by SEC staff, according to last week’s filing.Terms of the settlements won’t be disclosed until the SEC approves them, a decision that should take place over the next couple of weeks, said the filing. All of the convicted criminal defendants have either settled and defaulted, so if approved, this settlement would only leave Jaeger and Jerry Shanahan standing. Shanahan was the one former Enterasys executive who was not convicted or pleaded guilty in the 2006 trial.The SEC, also in a filing last week, said Jaeger’s experience as a mergers and acquisitions attorney at Ropes & Gray and as general counsel for Cabletron during shareholder suits alleging accounting fraud, and as the revenue recognition expert, was much more involved in Cabletron’s detailed operations well before, during and after the spinoff, despite Jaeger’s claim to the contrary. – BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW