Patel, but not Benson, on Enterasys trial witness list
Former Cabletron Systems Chief Executive Officer Piyush Patel may be called as a witness by attorneys for former executives of its largest spinoff, Enterasys Networks, according to the list of potential witnesses for the defense made public Oct. 31, about a week before the executives’ Nov. 7 trial on security fraud charges was set to begin in U.S. District Court in Concord.
Patel’s predecessor – Cabletron co-founder and former governor Craig Benson – is not on either potential witness list, though his name is mentioned three times in a 114-page list of potential defense exhibits for the trial.
Indeed, at a pretrial hearing at the end of October, one defense attorney told Judge Paul Barbadoro that he was considering making a motion to forbid the mention of Benson’s name from the trial altogether.
Benson was never an Enterasys executive, but at the time in question (immediately after the company was spun off in 2001) he was the company’s largest stockholder and a member of the board of directors.
No motion to exclude Benson was filed before the court’s deadline, unless it is a motion under seal relating to a “Special Committee’s Investigation.” That apparently refers to Enterasys’ internal investigation on the accounting fraud scandal when it first broke. Attached to the motion is the government’s preliminary witness list, which also was under seal.
U.S. Prosecutor William Morse said that the government did not plan to mention Benson, but would oppose any motion to exclude him because witnesses should not be restricted during testimony. He also said that one exhibit had a picture that included Benson. Several defense attorneys contacted would not explain why they wanted to exclude the mention of Benson’s name from the trial.
Patel, whom Benson once championed as his successor, engineered the split-up of Cabletron – once New Hampshire’s largest employer — resulting in two public companies, Enterasys and Riverstone Networks, both of which have moved out of the state.
He went on to chair Riverstone, which went bankrupt and was eventually acquired by Lucent Technologies. Patel was targeted, but not charged, in a Securities and Exchange Commission investigation that resulted in civil charges against six other Riverstone officials. Patel also has not been charged in the Enterasys criminal trial.
In the Enterasys trial, the government charges former Chief Financial Officer Robert Gagalis of conspiring with four other executives to inflate revenue. Former Enterasys CEO Enrique Fiallo previously pleaded guilty to a related charge and is on the government’s potential witness list as well as three other executives who also struck plea bargains.
It isn’t clear whether Patel will be called as a witness, and which defendant put him on the list. His name may come up anyway, however, since it is mentioned 26 times in the defense exhibit list.
Of the three times that Benson’s name is mentioned on the exhibit list, one refers to Benson’s 302 statements in May 2003, but that reference may be in error. Under Section 302 of the securities code, senior officers are required to sign off on financial statements, but Benson was never an executive at Enterasys and didn’t sign any of the four 302 statements attached to the quarterly report filed at that time.
The other involves a memo from “Pepin to Benson” relating to Fiallo’s stock options in 1999, two years before the spin-off. Pepin presumably refers to Linda Pepin, Benson’s human resources director at Cabletron, who later went on to work as a volunteer in the state’s personnel department when Benson was governor and got caught up in a conflict of interest scandal because of fees she earned as a consultant for brokering an insurance contract with the state.
The third involves an e-mail from defendant Bruce Kay to Benson in April 2001 concerning the SEC, five months before the spinoff.
Kay, a former Cabletron comptroller, was CFO of the Enterasys subsidiary at the time. Gagalis took the position in June 2001, and Kay became vice president of finance.
Along with the witness list, both sides filed numerous pretrial motions on the scope of the trial.
For instance, the defense objected to the prosecution’s inclusion of Enterasys’ deals with some 20 companies, in order to prove its case that the defendants used these deals to fraudulently inflate revenue. On the other hand, the defense wants to obtain and perhaps use evidence relating to any possible federal investigation of Enterasys’ accountants (several of whom are on the government witness list) and on plea-bargain details.