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Former Enterasys chief pleads guilty to fraud

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The former chief executive officer of networking firm Enterasys this week pleaded guilty to fraud over an illegal scheme to talk up the firm's share price three years ago.

Enrique “Henry” P. Fiallo, 52, of Hampton Falls, New Hampshire, pleaded guilty to a single charge of conspiracy to commit mail, wire and securities fraud. He admitted participation in a scheme to fraudulently inflate Enterasys' reported revenues by $20m for the three months ending 1 September 2001. As part of his plea, Fiallo has agreed to cooperate with the government in its ongoing inquiries into Enterasys' finances.

The co-conspirators allegedly caused Enterasys to mislead investors and the Securities and Exchange Commission by falsely claiming that it had met or exceeded previously announced revenue targets and analyst estimates. They did this by using Enterasys funds to invest in fictitious companies that used the money pumped into them to (at least on paper) buy Enterasys' kit.

Fiallo faces a maximum sentence of five years in prison and a fine of $250,000 or twice his gain from the scam, whichever is greater. Sentencing at US District Court in Concord, New Hampshire has been set for 17 December 2004.

An indictment returned by a federal New Hampshire grand jury in May 2004 charges two former Enterasys executives - ex-chief financial officer Robert Gagalis and former SVP of finance Bruce Kay - with fraud and conspiracy charges for their participation in a fraudulent revenue transaction with a China-based company called Ariel. Three other defendants - Gayle Spence Luacaw, a former SVP of internal sales at Enterasys, Gary Workman, a former president of Enterasys’ APAC Division, and Anthony Hurley, a former assistant controller of Enterasys - have already pleaded guilty to either conspiracy or wire fraud in connection with the Ariel deal.

Enterasys was the main spin-off firm of Cabletron Systems in 2001. The company was co-founded by New Hampshire Governor Craig Benson before he went into politics. Benson is not accused of any wrongdoing. ®

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