WASHINGTON, D.C. - Assistant Attorney General Christopher A. Wray of the Criminal Division and Acting United States Attorney Peter E. Papps for the District of New Hampshire today announced that another former executive of Enterasys Network Systems, Inc., a computer hardware and software corporation previously headquartered in Rochester, New Hampshire, has pleaded guilty to charges arising from a revenue recognition scheme.
Gayle Spence Luacaw, 45, of New Hampshire, entered her guilty plea this morning before Chief Judge Paul Barbadoro at the U.S. District Court in Concord, New Hampshire. Spence, a former vice president and director of internal sales of Enterasys, pleaded guilty to a one-count criminal information charging her with conspiracy to commit securities fraud and wire fraud for her participation in a fraudulent transaction with a China-based company known as Ariel, which allowed Enterasys to improperly report approximately $3.5 million in revenue for the quarter ended Sept. 1, 2001. Spence also entered into a cooperation agreement with the government.
Spence faces a maximum sentence of five years in prison and a fine of $250,000. Sentencing is scheduled for March 21, 2005.
An indictment returned by a federal grand jury in New Hampshire in May 2004 charged three former Enterasys executives - Spence, former Executive Vice President and Chief Financial Officer Robert J. Gagalis and former Senior Vice President of Finance Bruce D. Kay - with conspiracy, securities fraud, wire fraud and mail fraud. Two other defendants, Gary Workman, a former president of Enterasys' APAC Division, and Anthony Hurley, a former assistant controller of Enterasys, have already pleaded guilty to wire fraud for their participation in the fraudulent transaction with Ariel.
The charges stem from a revenue recognition scheme that involved altering and backdating contracts, entering into secret side deals and making false representations in filings to the U.S. Securities and Exchange Commission (SEC) in company press releases and to the company's outside auditors.
Enterasys, now headquartered in Andover, Massachusetts, succeeded Cabletron Systems, Inc., when the two companies merged in August 2001.
The investigation is being conducted by the Federal Bureau of Investigation and the U.S. Postal Inspection Service. The case is being prosecuted by Fraud Section Trial Attorney Michael Koenig and Senior Counsel for Securities Fraud Thomas Hanusik of the Justice Department's Criminal Division, and Assistant United States Attorney William Morse of the United States Attorney's Office for the District of New Hampshire.