SECURITIES EXCHANGE ACT OF 1934
Release No. 47405 / February 26, 2003

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1722 / February 26, 2003

ADMINISTRATIVE PROCEEDING
File No. 3-11047


In the Matter of

Enterasys Networks, Inc. and Aprisma Management Technologies, Inc.

Respondents.


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ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE IMPOSING A CEASE-AND-DESIST ORDER AGAINST ENTERASYS NETWORKS, INC. AND APRISMA MANAGEMENT TECHNOLOGIES, INC.

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Enterasys Networks, Inc. (together with its predecessor, Cabletron Systems, Inc., "Enterasys") and Aprisma Management Technologies, Inc. ("Aprisma") (collectively "Respondents").

II.

In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-And-Desist Order against Enterasys and Aprisma ("Order"), as set forth below.

III.

On the basis of this Order and Respondents' Offer, the Commission finds1 that:

1. Enterasys is a Delaware corporation based in Rochester, New Hampshire, whose stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act. Enterasys designs and develops networks communications hardware and software products and provides related support services. At all times relevant hereto, Enterasys filed periodic reports with the Commission containing consolidated financial statements that included the financial performance of Aprisma.

2. Aprisma, a software design and development company, is a Delaware corporation based in Portsmouth, New Hampshire. At all times relevant hereto, Aprisma was a majority owned subsidiary of Enterasys. On November 20, 2001, Aprisma filed a Form 10 registration statement with the Commission to register its stock pursuant to Section 12(g) of the Exchange Act. Although Aprisma's registration statement became effective on January 19, 2002, Aprisma filed a Form 15 with the Commission on July 19, 2002 to terminate its registration.

3. From March 2000 through December 2001 (the "relevant period"), Enterasys and Aprisma engaged in improper accounting practices, including entering into a number of transactions for which they knowingly, or recklessly, recognized revenue under circumstances where revenue should not have been recognized under Generally Accepted Accounting Principles ("GAAP").2

4. During the relevant period, Enterasys and Aprisma entered into sales transactions in which their customers were given the right to return or exchange the products being sold, or their customers were given the right to cancel the underlying transaction. In many of the transactions involving return rights, the purchasing party was not required to pay Enterasys or Aprisma until it resold the products to end-users, and could return the products in the event it was unable to locate end-user purchasers. Although it was improper under GAAP to recognize revenue for sales that were subject to return, exchange, or cancellation rights, Enterasys and Aprisma recognized revenue for these transactions during the relevant period.

5. During the relevant period, Enterasys and Aprisma entered into several transactions in which they invested cash in, and/or gave credits for their products to, other companies in return for an equity or debt interest and the other company's agreement to purchase their products either directly or indirectly through a third party reseller. Although several of these investment transactions lacked economic substance, Enterasys and Aprisma improperly recognized revenue for these investment related sales during the relevant period. Moreover, Enterasys and Aprisma improperly overstated the value of their investment interests with respect to some of these transactions during the relevant period.

6. During the relevant period, Enterasys and Aprisma entered into transactions in which they purchased products or services from other companies in return for the other company's agreement to purchase a comparable dollar value of their products at or about the same time. In these "swapping" arrangements, Enterasys and Aprisma essentially exchanged products or services with other companies without having a legitimate business purpose for the exchange. Although improper under GAAP, Enterasys and Aprisma recognized revenue for these sales during the relevant period.

7. On the final day of various quarters during the relevant period, Enterasys utilized intermediate shippers to hold products until final shipping arrangements with Enterasys's regular shippers could be made on the next business day. In these transactions, the risk of loss for, and title of ownership to, the products remained with Enterasys while the products were held by the intermediary shippers. Although improper under GAAP, Enterasys prematurely recognized revenue for these transactions during the relevant period.

8. At the end of various quarters during the relevant period, Enterasys increased its cash account and accounts payable by the total value of its outstanding checks that had not yet been cashed by others. It was improper under GAAP for Enterasys to adjust the foregoing accounts under these circumstances. At the end of various quarters, Enterasys also improperly increased its cash account and decreased its accounts receivable by recording payments that it had not received until shortly after the end of the quarter.

9. As a result of the improper accounting practices described above, Enterasys knew, or was reckless in not knowing, that its annual report filed with the Commission for the fiscal year ended March 3, 2001, and its quarterly reports filed with the Commission for the quarters ended June 3, 2000, September 2, 2000, December 2, 2000, June 2, 2001, September 1, 2001, and September 29, 2001 contained false and misleading financial statements. Accordingly, Enterasys committed violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. As a result of the improper accounting practices described above, Enterasys also committed violations of Section 13(a) of the Exchange Act, Rules 13a-1 and 13a-13 thereunder, and Exchange Act Rule 12b-20.

10. As a result of the improper accounting practices described above, Aprisma knew, or was reckless in not knowing, that its registration statement filed with the Commission on November 20, 2001 contained false and misleading financial statements. In addition, Aprisma knew, or was reckless in not knowing, that Enterasys's annual report filed with the Commission for the fiscal year ended March 3, 2001, and its quarterly reports filed with the Commission for the quarters ended September 2, 2000, December 2, 2000, June 2, 2001, September 1, 2001, and September 29, 2001 contained false and misleading consolidated financial statements. Accordingly, Aprisma committed violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. As a result of the improper accounting practices described above, Aprisma also committed violations of Section 12(g)(1) of the Exchange Act and Rule 12b-20 thereunder. In addition, Aprisma was a cause of Enterasys' violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.

11. By engaging in the foregoing accounting practices, Enterasys knew, or was reckless in not knowing, that it was falsifying books, records or accounts subject to Section 13(b)(2)(A) of the Exchange Act, failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP, and failing to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected the company's transactions and dispositions of assets. Accordingly, Enterasys violated, and Aprisma was a cause of Enterasys' violation of, Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. By engaging in the foregoing accounting practices, Enterasys also violated, and Aprisma was a cause of Enterasys' violation of, Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.

Respondents' Remedial Efforts

In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondents and cooperation afforded the Commission staff.

Undertakings

A. Respondents have undertaken to cooperate fully with the Commission in any and all investigations, litigations or other proceedings brought by the Commission relating to or arising from the matters described in the Order, and undertake:

1. To comply with any and all reasonable requests by the Commission's staff for company documents or other information;

2. To be interviewed, and to make their officers, directors, employees, agents and other representatives available to be interviewed, by the Commission's staff at such times as the Commission's staff reasonably may direct;

3. To appear and testify, and to make their officers, directors, employees, agents and other representatives available to appear and testify in such investigations, depositions, hearings or trials as the Commission's staff reasonably may direct;

4. That in connection with any (i) testimony of Respondents or their officers, directors, employees, agents and other representatives to be conducted by testimony session, deposition, hearing or trial, or (ii) requests for documents or other information, that any notice or subpoena for such may be addressed to their counsel, and be served by mail or facsimile.

B. Respondent Enterasys has also undertaken to appoint an internal auditor who reports directly to the Audit Committee of Enterasys's Board of Directors.

In determining whether to accept the Offer, the Commission has considered these undertakings.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondents' Offer.

Accordingly, it is ORDERED that:

A. Pursuant to Section 21C of the Exchange Act, Respondent Enterasys shall cease and desist from committing or causing any violations and any future violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-1, 13a-13 and 13b2-1 thereunder, and Exchange Act Rule 12b-20.

B. Pursuant to Section 21C of the Exchange Act, Respondent Aprisma shall cease and desist from committing or causing any violations and any future violations of Sections 10(b), 12(g)(1), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-1, 13a-13 and 13b2-1thereunder, and Exchange Act Rule 12b-20.

C. Respondent Enterasys shall comply with the undertakings enumerated in Section III.B. above.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

1 The findings herein are made pursuant to Respondents' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.

2 In April 2002, Enterasys appointed William K. O'Brien as its new chief executive officer.