Judge upholds charges in ex-Cabletron exec’s civil case

The Securities and Exchange Commission has a case against Eric Jaeger – Cabletron Systems’ former vice president and top attorney — for falsifying books and participating in a scheme to inflate revenue, federal Judge Steven McAuliffe ruled last week in Concord.McAuliffe denied Jaeger’s motion to throw out the civil charges, deciding that prosecutors had enough evidence that Jaeger knew the Rochester company and its spinoffs improperly recognized revenue from three deals that he was involved in.Jaeger and former Cabletron chief operating officer Jerry Shanahan are the only two defendants remaining in the SEC’s civil securities fraud case against Cabletron.Eight executives from Enterasys Networks — Cabletron’s main successor — have gone to jail on criminal charges that they conspired to inflate revenue during the 2001 spinoff. Four were convicted by jury, while the rest pleaded guilty.The civil case involved similar charges but covered a broader period of time, many more transactions and included several executives of Cabletron, which was once New Hampshire’s largest employer.The civil case focused on who the SEC said were the three alleged ringleaders: former Cabletron CEO Piyush Patel, former chief financial officer David Kirkpatrick and Jaeger. In June, Patel and Kirkpatrick agreed to pay $237,000 and $349,000, respectively, to settle the case.That left Jaeger, who joined Cabletron in 1998 after leaving Ropes and Grey, the law firm that represented Cabletron and Enterasys in the ensuing scandal.Before the settlement, McAuliffe threw out most of the charges in the SEC’s original complaint. In Jaeger’s case, two charges were left intact: an aiding and abetting claim and a falsification of books claim. These were limited to three specific deals.Jaeger had argued that the SEC didn’t have enough evidence to go to trial. His attorneys said that the main witness against him – an SEC accountant named Steven Henning – primarily regurgitated the SEC’s argument, rather than present any actual evidence.Jaeger argued that while he may have participated in the transactions, he didn’t know about their impact on revenue recognition.But citing a number of e-mails, McAuliffe said there was enough evidence that Jaeger was aware of the rules for revenue recognition. He wrote that Jaeger was one of Cabletron’s representatives to approve sales transactions that didn’t meet the company’s revenue recognition criteria, that he took the lead in drafting guidance on revenue reported at analysts’ calls, and that he was responsible for giving the transaction documents to the accounting department.Jaeger also “controlled or had substantial influence over, which documents were provided to the outside auditors” and at one point “dictated to the CFO of Enterasys what documents should not be given to the outside auditor,” McAuliffe wrote. — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW