U.S. attorney rebuffs ex-Enterasys exec’s conflict charge

Former New Hampshire U.S. Attorney Tom Colantuono did not steer the Cabletron/Enterasys investigation away from Cabletron founder Craig Benson, according to the U.S. attorney’s office.

In a filing last month in U.S. District Court in Concord, the office gave its first response to charges by former Enterasys Systems chief financial officer Robert Gagalis (now serving an 11-1/2-year federal prison term for securities fraud) that he took the fall for Benson, founder of Cabletron Systems – which spun off Enterasys in 2001 – and his cronies.

Gagalis charged Colantuono, a former Republican state senator, executive councilor and congressional candidate, had ties to Benson, a fellow Republican who was serving as governor when Colantuono was U.S. attorney. Gagalis charges that Colantuono should have recused himself from the case.

Gagalis also alleges that his former attorney, James Rehnquist, went along with the situation because Rehnquist’s law firm was at the time representing a former Cabletron executive Daniel Harding who was targeted by prosecutors for the same kind of fraud as Gagalis, but never charged.

Colantuono recently stepped down as U.S. Attorney, but in the filing, acting U.S. Attorney Michael Gunnison contends that Colantuono was not close to Benson, that he did recuse himself in time because of the “appearance” of a conflict, that the evidence against Benson was “utterly insufficient” and that it’s the office’s right to select who to prosecute as long as there is no improper motive.

In addition, Gagalis claims about his attorney’s conflicts are “fanciful and frivolous” because Harding and Gagalis never met and never worked for the same company.

Besides, Gunnison said, none of this would have done Gagalis any good because he was clearly guilty as charged and was not willing to admit his wrongdoing.

Finally, Gagalis was smart enough to know what he was doing when he waived his right to appeal on the matter, Gunnison said.

Gagalis is asking the court to vacate his 2006 conviction that he conspired with other executives to inflate revenue during the Rochester-based Cabletron’s 2001 spinoff of Enterasys and Riverstone Networks.

By the time of the spin off, Benson had stepped down as chief executive, ushering in his hand-picked replacement, Piyush Patel, who engineered the split-up of what was once the state’s largest employer. But Benson remained the largest stockholder of both Cabletron and Enterasys and served on their boards of directors.

‘Chinese wall’

The U.S. Securities and Exchange Commission has civilly charged Patel, along with Cabletron’s former chief financial officer, David Kirkpatrick, and Eric Jaeger, former Cabletron executive vice president, with leading a broader conspiracy to inflate revenue at both Cabletron and Enterasys.

Those proceedings are still continuing.

Gagalis also is named in that case, but the criminal charges were much more narrow in scope, confined only to Enterasys officials. The highest-ranking criminal conspirator – ex-Enterasys chief executive Henry Fiallo – pleaded guilty and testified against Gagalis and four other conspirators who did not cooperate.

Three of those four were convicted, while one is being retried.

During the criminal trial, and sentencing, there were hints by the judge and attorneys from both sides, that those higher up might be more culpable. But Benson was not mentioned in either proceeding. Gagalis only fingered him after his conviction.

The U.S. attorney’s filing also disparages Gagalis’ argument that Colantuono only recused himself because of his ties to Benson after Gagalis was already targeted. Gagalis’ attorneys mainly pointed to political ties: Benson’s campaign contributions to Colantuono and Colantuono’s approval of Cabletron contracts. The U.S. attorney’s filing, however, says that there “was never any personal relationship.”

The filing also said Colantuono “requested that he be recused” from all involvement in the matter on Aug. 7, 2002, just months after the investigation opened, and that following his recusal “he was not involved in any decisions-making with respect to the case” and “did not communicate about the investigation.”

The filing also says it was the U.S. attorney’s office that looked into a conflict of interest involving Rehnquist in the first place before the criminal trial. The U.S. attorney was mollified once Rehnquist assured them that there would be a “Chinese wall” that separated the two investigations.

Besides, it’s too late to raise all this, argued the filing. Gagalis waived his right to appeal in order to avoid the risk of being sentenced under more recent sentencing guidelines, which could have doubled his jail term. Gagalis maintains he did this under the advice of his compromised attorney, but the filing noted that Gagalis is a “highly intelligent, well educated and exceptionally accomplished professional” who participated in his own defense. And the filing quoted at length U.S. District Court Judge Paul Barbadoro questioning Gagalis before sentencing.

“Just one last question,” Barbadoro said. “You understand, this is your decision, not your lawyers’ decision to make. They can advise you but it’s really up to you and you alone.”

“It is my decision,” Gagalis replied before Barbadoro sentenced him to 138 months in prison.

Bob Sanders can be reached at bsanders@nhbr.com.