Thursday, July 5, 2007
Four former executives of Enterasys Networks, Inc., a Massachusetts network router company, received substantial prison terms for their role in an accounting fraud at the company in 2001. The defendants, who were convicted on a variety of charges including conspiracy and securities fraud, include Enterasys' former CFO, sentenced to over eleven years, and its former senior VP for finance, who received a sentence of over nine years. The other two executives received prison terms of eight and three years. Problems arose at the company as the tech bubble burst in 2000, and by 2001 the pressure was on to maintain the stock price in the face of declining revenues. According to a press release (here) issued by the U.S. Attorney's Office for the District of New Hampshire:
Evidence at trial showed that starting in the summer of 2001, the four defendants and other Enterasys executives inflated Enterasys’s revenue figures in order to satisfy the publicly reported expectations of Wall Street analysts and to increase, or at least maintain, the price of Enterasys stock. The conspirators backdated and falsified documents and concealed material terms of business transactions from Enterasys’s auditors in order to inflate revenues. The conspirators also fraudulently created false revenue by secretly investing company funds in other companies and causing those companies to use the investment proceeds in turn to buy Enterasys products. The court found that public investors lost at least $97 million as a result of the fraudulent scheme.
The company's former CEO earlier entered a guilty plea to charges. Don't think that sentencing in corporate fraud cases is diminishing. (ph)