CONCORD, NEW HAMPSHIRE - Enrique ("Henry") P. Fiallo, the former Chairman, President and Chief Executive Officer of Enterasys Networks, Inc., was sentenced today to a prison term for his role in an accounting fraud conspiracy at the computer network company formerly based in Rochester, N.H., announced Acting U.S. Attorney Joseph N. Laplante for the District of New Hampshire.

At a sentencing hearing in U.S. District Court in Concord, N.H., Chief U.S. District Judge Steven J. McAuliffe, sentenced Fiallo, to four years in prison and two years of supervised release after serving his prison term. At the government's request, the court granted leniency to Fiallo in recognition of the substantial assistance he provided to the government in prosecuting other former Enterays executives. Fiallo cooperated with the government by, among other things, testifying in a six week trial against five other former Enterasys executives in November and December of 2006. The jury convicted four of those defendants, including Enterasys's former Chief Financial Officer, Robert J. Gagalis. The four defendants convicted at trial were previously sentenced to prison terms ranging from three years to eleven and a half years. Three additional former Enterasys executives who pleaded guilty and cooperated were sentenced over the summer to prison terms ranging from 12 months to 41 months. So far, eight of the nine former Enterasys executives charged in the scheme have been found guilty at trial or have pleaded guilty and have been sentenced to prison. A jury was unable to reach a unanimous verdict with respect to the ninth executive, Enterasys's former Chief Operating Officer, Jerry A. Shanahan, who will be retried.

According to the evidence introduced at trial and public statements made by the defendants who have pleaded guilty, the eight sentenced defendants participated in a scheme to inflate 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. They backdated and falsified documents and concealed material terms of business transactions from Enterasys's auditors in order to inflate revenue. They also fraudulently created revenue by secretly investing company funds in other companies and causing those companies to use the investment proceeds in turn to buy Enterasys products. Finally, the defendants caused Enterasys to issue press releases and file financial statements with the Securities and Exchange Commission that, by virtue of the falsification of documents and fraudulent transactions, materially overstated Enterasys's revenue results. The court found that, as a result of the fraudulent scheme, public investors lost at least $97 million.

The case was prosecuted by Assistant U.S. Attorney Bill Morse on behalf of the U.S. Attorney's Office in Concord, and Senior Litigation Counsel Colleen A. Conry from the Fraud Section of the Criminal Division in Washington, D.C. The criminal investigation was conducted by the Federal Bureau of Investigation and the U.S. Postal Inspection Service. The criminal investigation was coordinated with a civil investigation conducted by the SEC's Central Regional Office in Denver, which has brought a parallel civil case seeking disgorgement of ill-gotten gains and the imposition of civil penalties. The SEC's civil case is pending. The criminal case was brought under the auspices of the President's Corporate Fraud Task Force.