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3 former Enterasys executives plead not guilty to fraud charges

CONCORD, N.H. -- Three former top executives of Enterasys Networks Inc. pleaded not guilty yesterday and another former officer pleaded guilty to federal fraud charges that prosecutors said cost investors $1.3 billion.

Former assistant controller Anthony Hurley, 34, of Georgetown, Mass., pleaded guilty in a sealed hearing to one count of wire fraud in the alleged conspiracy to inflate the company's revenue. He faces up to five years in prison and a fine of $250,000.

Another former official pleaded guilty earlier.

Former chief financial officer Robert Gagalis, 49, of Rye; former senior vice president for finance Bruce Kay, 53, of Yarmouth, Maine, and Gayle Spence, 45, of Newfields, a former executive assistant to the CEO and vice president for internal sales, pleaded not guilty to charges of securities fraud and wire fraud.

They had surrendered yesterday morning to US marshals.

First Assistant US Attorney Peter Papps said the defendants conspired to inflate reported revenue to bolster the value of Enterasys stock and to further their careers.

Assistant US Attorney William Morse said the alleged offenses caused Enterasys stock to drop $10.80 "overnight," costing investors $1.3 billion.

Cathy Green, Gagalis's lawyer, said he "absolutely, vehemently denies any wrongdoing. He looks forward to a trial when he will be exonerated."

Kay's lawyer, Lloyd Macdonald of Boston, said his client also looks forward to trial to prove he is innocent.

Spence's lawyer, Peter Gelhaar of Boston, declined to comment.

None of the three defendants commented.

Magistrate James Muirhead freed Gagalis on $500,000 unsecured bail and Kay and Spence on $50,000 unsecured bail.

A trial was set for all three for July 20, though Macdonald said he later might question being tried with Spence. Macdonald said Kay was not even with the company during one of the alleged transactions.

She was indicted on 15 counts, Gagalis and Kay on 10 counts each.

Morse said a fifth former executive, Gary Workman, 57, of San Ramon, Calif., pleaded guilty Monday to wire fraud and will be sentenced in September. Workman was president of Enterasys's Asia-Pacific sales division.

Governor Craig Benson, an Enterasys director at the time of the alleged conspiracy, was not named in the indictment against the three. Morse declined to say if Benson was mentioned in the investigation, citing office policy.

The Andover company was based in Rochester, N.H., at the time of the alleged scheme. The computer networking company is the main successor to Cabletron Systems Inc., which Benson cofounded in 1983.

In October, Enterasys agreed to a $50 million settlement with investors who had accused top executives, including Gagalis, of regularly orchestrating phony deals and accounting tricks to inflate revenues.

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