Testimony points to Enterasys deals

Jerry Shanahan, Enterasys Networks’ former chief operating officer, asked Robert Barber, the former senior vice president of business development at Cabletron Systems, to close a deal before the quarter ended in order to inflate the Enterasys’ revenue, according to Barber’s testimony to the Securities and Exchange Commission that was revealed in court documents filed earlier this month.

Both executives are fighting federal fraud securities charges in a trial that is expected to begin in March in U.S. District Court in Concord.

Shanahan was asking the court to quash Barber’s SEC testimony or sever their trials, and to do so he included a partial transcript in the record.

According to the federal indictment, Enterasys invested in several third-party companies in exchange for agreements by those companies to buy Enterasys products. It then allegedly hid those transactions from shareholders in order to boost sales for the first quarter after being spun off of Cabletron.

Cabletron – once the state’s largest employer – split up in 2001, with Enterasys as its main successor. Enterasys has since left the state, and is being sold to some private investors.

One of the alleged deals involved Worldlink Technologies Inc., an Internet service company. Enterasys invested $6.3 million in Worldlink, with the promise of $6.8 million more, to allow Enterasys to improperly record $4.6 of revenue for its products, according to the indictment.

Barber testified that he accelerated the Worldlink deal at Shanahan’s request. Barber said Shanahan didn’t know why he wanted it to close earlier, but he assumed it was because “he needed the revenue.”

Barber later said about such investment deals: “it was obvious that they were generating revenue out of them.”

Another time, Barber was asked about a memo written by Shanahan a week after Enterasys broke off from Cabletron that concerned a proposed consulting contract at Enterasys.

Barber was supposed to focus on “investments,” and the term “investments” were put in quotations. Under the deal, Barber would be paid only for investments that achieved revenue. However, Barber said, that particular remuneration deal was never consummated, and said he did not know why the word investments was put in quotation marks. – BOB SANDERS