Witness backfires against Enterasys prosecution

Testimony by the first witness in the government’s case against five former Enterasys Networks officials charged with securities fraud has backfired badly, at least so far.

Testimony by Gary Workman, the former president of Enterasys’s Asia Pacific Division was “devastating,” not to the defense, but to the federal prosecution’s credibility and was a defense “lawyer’s dream,” said Judge Paul Barbadoro in the third day of the trial in U.S. District Court in Concord.

Barbadoro said these words when the jury was out of the courtroom, but he gave wide latitude to defense attorney Andrew Good in questioning Workman, even allowing him to call Workman a “liar” in front of the jury.

“Yes, I lived a life of falsehood,” Workman agreed.

Good represents former chief operating officer Jerry Shanahan, one of the five defendants on trial on charges of conspiring to inflate revenue the quarter after Enterasys was spun off from Cabletron Systems of Rochester in August 2001.

Workman, who pleaded guilty to one count of securities fraud in exchange for testifying truthfully, was allegedly part of that conspiracy. His testimony primarily focused on a secret side agreement to $3.5 million deal with Ariel International Technologies. Shanahan had little, if anything, to do with this particular deal, but he supposedly provided the “pressure” to do “whatever it takes” to meet the target that pushed people under him to break the rules.

On Nov. 9, under direct questioning by U.S. Attorney William Morse, Workman testified that Shanahan, despite projections that he could not increase his division’s sales beyond the previous quarter’s $25 million, arbitrarily insisted on a $31 million target — a 25 percent increase — even though the high-tech market was collapsing.

But on Monday, Good confronted Workman with a document sent to Shanahan that stated that the previous quarter’s results were $31 million, not $25 million.

“That’s what the document says,” agreed Workman.

When pressed, Workman said he is not sure what he actually told Shanahan at the time. He said that he had inflated that previous quarter in order to meet his bonus goal of $30 million, because of “greed.” So the figure was $25 million “in my mind,” and he believed that Shanahan also knew that the $31 million figure would be adjusted downward eventually.

Another document sent at the same time to Shanahan said that the target during the quarter after the spinoff was $33 million, but later documents showed it to be $31 million. Thus, said Good, rather than pressuring employees into artificially inflating revenue, Shanahan actually reduced the target.

Workman, however, said that the $33 million goal was his “personal target” set for compensation purposes and that was above and beyond the $31 million target, and the target was not reduced.

Good also produced documents in which Shanahan actually gave Workman partial credit, even though he fell short of his goals — to which Workman replied, “Sounds fair. Thanks.”

Barbadoro thought the shift in testimony was so serious that he entertained a motion to throw out Workman’s testimony altogether, cautioning Morse that by allowing his witness to testify falsely, “if intentional, would be highly unethical.” Morse said that he only became aware the document apparently contradicting his client’s testimony over the weekend.

Good argued that the government supplied the document itself, and it amounted to “willful blindness” to allow a “myth” to be perpetuated to the jury. But Barbadoro decided against throwing out Workman’s entire testimony, partly because “this was a great gem falling in your lap” and “fundamentally undermines” the prosecution’s credibility. – BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW