FOUR FORMER ENTERASYS EXECUTIVES SENTENCED ON
FRAUD AND CONSPIRACY CHARGES

CONCORD, NEW HAMPSHIRE – Assistant U.S. Attorney General Alice S. Fisher and Acting U.S. Attorney Joseph N. Laplante for the District of New Hampshire announced today that four former Enterasys Networks, Inc. executives have been sentenced to prison terms for their roles in an accounting fraud conspiracy at the computer network company formerly based in Rochester, New Hampshire.

The executives had been convicted of conspiracy and fraud charges at a December 2006 jury trial. At sentencing hearings, U.S. District Court Judge Barbadoro sentenced former Enterasys Chief Financial Officer Robert J. Gagalis to 11 ½ years in prison. The court also sentenced Gagalis to two years of supervised release. Gagalis was convicted of one count of conspiracy, two counts of securities fraud, one count of making false statements to auditors of a public company, and four counts of wire fraud.

Bruce D. Kay, formerly Enterasys’s Senior Vice President of Finance, was sentenced to 9 ½ years in prison. Kay was also sentenced to two years of supervised release. The jury found Kay guilty of one count of conspiracy, two counts of securities fraud, one count of falsifying books and records of a public company, one count of making false statements to auditors of a public company, and three counts of wire fraud. Robert G. Barber, a former Enterasys business development executive, was sentenced to 8 years in prison and fined $25,000. Barber also was sentenced to three years of supervised release. The jury found Barber guilty of conspiracy, two counts of securities fraud, one count of falsifying books and records of a public company, and one count of making false statements to auditors of a public company.

Hor Chong (David) Boey, former finance executive in Enterasys’s Asia Pacific division, was sentenced to 3 years in prison. Boey was also sentenced to three years supervised release. Boey was convicted of conspiracy, two counts of securities fraud, one count of falsifying books and records of a public company, one count of making false statements to auditors of a public company, and two counts of wire fraud.

In imposing the sentences, Judge Barbadoro noted that nationwide there were “only a handful” of securities fraud defendants serving sentences as long as those imposed in this case. Acting U.S. Attorney Joseph N. Laplante stated, “The stiff sentences appropriately reflect the very serious nature of the defendants’ crimes. Our nation’s economy depends on honest stock markets and those who intentionally present false information expose themselves to arrest, prosecution, and lengthy incaceration.”

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.

Several other former Enterasys executives, including former Chairman, Chief Executive Officer and President Henry Fiallo, previously pleaded guilty to felony charges in connection with the scheme. To date, eight former Enterasys executives have been convicted of felonies in this matter. The Securities and Exchange Commission also has named each of those individuals and others in a related civil case in which it is seeking disgorgement of ill-gotten gains and the imposition of civil penalties.

The case was prosecuted by Assistant U.S. Attorney Bill Morse from the U.S. Attorney’s Office in Concord, and Senior Litigation Counsel Colleen A. Conry from the Fraud Section of the Criminal Division with the U.S. Department of Justice in Washington, D.C. The 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. The case was brought under the auspices of the President’s Corporate Fraud Task Force.