Three Former Enterasys Execs Plead Innocent To Accounting Fraud Charges - InformationWeek

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Three Former Enterasys Execs Plead Innocent To Accounting Fraud Charges

Another former officer pleaded guilty in a fraud that federal prosecutors allege cost investors $1.3 billion.

CONCORD, N.H. (AP) _ Three former top executives of Enterasys Networks Inc. pleaded innocent Thursday and another former officer pleaded guilty in a fraud that federal prosecutors allege cost investors $1.3 billion.

Former Assistant Controller Anthony Hurley, 34, of Georgetown, Mass., pleaded guilty in a closed hearing in U.S. District Court to one count of wire fraud in the alleged conspiracy to inflate the company's revenue. He faces up to five years in prison and a fine of $250,000.

Former chief financial officer Robert Gagalis, 49, of Rye; former senior vice president for finance Bruce Kay, 53, of Yarmouth, Maine, and Gayle Spence, 45, of Newfields, a former executive assistant to the CEO and vice president for internal sales, pleaded innocent to charges of securities fraud and wire fraud.

Prosecutors said the defendants conspired to inflate reported revenue in order to bolster the value of Enterasys stock and to further their careers.

Assistant U.S. Attorney William Morse said the alleged offenses caused Enterasys stock to drop $10.80 "overnight," costing investors $1.3 billion.

Lawyers for Gagalis and Kay said their clients did nothing wrong, while Spence's attorney declined to comment.

Magistrate James Muirhead freed Gagalis on $500,000 unsecured bail and Kay and Spence on $50,000 unsecured bail.

A trial was set for all three for July 20.

Morse said a fifth former executive, Gary Workman, 57, of San Ramon, Calif., pleaded guilty Monday to wire fraud and will be sentenced in September. Workman was president of Enterasys' Asia-Pacific sales division.

The Andover, Mass., company was based in Rochester, N.H., at the time of the alleged scheme. The computer networking company is the main successor to Cabletron Systems Inc., which Benson co-founded in 1983.

In October, Enterasys agreed to a $50 million settlement with investors who had accused top executives, including Gagalis, of regularly orchestrating phony deals and accounting tricks to inflate revenues.

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