Three Former Enterasys Executives Charged With Accounting Fraud

A fourth executive pleaded guilty to one count of wire fraud in connection with the case.

Peter Papps, acting U.S. Attorney for New Hampshire, said the men conspired to inflate reported revenue in order to bolster the value of Enterasys stock and to further their careers.

The indictment charges Robert Gagalis, 49, of Rye; Bruce Kay, 53, of Yarmouth, Maine; and Gayle Spence, 45, of Newfields; with conspiracy, securities fraud and wire fraud.

"Mr. Gagalis denies any allegations of wrongdoing and very much looks forward to being exonerated," his lawyer, David Kistenbroker, said. Kay and Spence could not be reached immediately for comment.

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Assistant U.S. Attorney William Morse said Gary Workman, 57, of San Ramon, Calif., pleaded guilty to wire fraud and will be sentenced in September.

Gagalis, Kay and Spence were to be arraigned in U.S. District Court on Thursday.

The Andover, Mass., company, which makes routers, switches and other network equipment, 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 Gov. Craig Benson co-founded in 1983.

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

Benson resigned from the company's board when he was inaugurated in January 2003. He was not named in the lawsuit that prompted the settlement.

The company denied the accusations and admitted no wrongdoing in the settlement.

In April 2003, the company settled a year-long Securities and Exchange Commission investigation of its accounting practices. The agreement did not have penalties, fines or adjustments to previous financial statements.

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