FORMER EXECUTIVE OF ENTERASYS NETWORK SYSTEMS PLEADS GUILTY

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 a 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.

Anthony L. Hurley, 34, of Massachusetts, entered his guilty plea this afternoon before Chief Judge Paul Barbadoro at the U.S. District Court in Concord, New Hampshire. Hurley, a former assistant controller of Enterasys, pleaded guilty to a one-count criminal information charging him with wire fraud for his 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. Hurley also entered into a cooperation agreement with the government.

Hurley faces a maximum sentence of five years in prison and a fine of $250,000 or twice the gain, whichever is greater. Sentencing is scheduled for Sept. 2, 2004.

An indictment returned by a federal grand jury in New Hampshire yesterday charged three former Enterasys executives - former Executive Vice President and Chief Financial Officer Robert J. Gagalis; former Senior Vice President of Finance Bruce D. Kay; and former Vice President and Director of Internal Sales Gayle Spence - with conspiracy, securities fraud, wire fraud and mail fraud. A fourth defendant, Gary Workman, a former president of Enterasys’ APAC Division, has pleaded guilty to wire fraud for his 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 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.

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