Litigation Release No. 19997 / February 12, 2007

Accounting and Auditing Enforcement Release No. 2553 / February 12, 2007

Securities and Exchange Commission v. Enrique (Henry) Fiallo, Civil Action No. 07CV036 (D.N.H.)

On February 8, 2007, the Securities and Exchange Commission filed a partially settled civil fraud action against Enrique (Henry) Fiallo in United States District Court for the District of New Hampshire. According to the Commission's complaint, from March 2000 through December 2001, Fiallo, the former Chief Executive Officer for Enterasys Networks, Inc., participated in a company-wide scheme to fraudulently inflate revenues at Enterasys and its former parent company, Cabletron Systems, Inc., and thereby convince the market that Enterasys was a viable independent company with consistently strong revenue growth. The Commission's complaint further alleges that Fiallo directly participated in transactions which involved undisclosed side agreements in which the purchaser was granted full return or exchange rights, or payment for the product was contingent upon the purchaser's resale of the product, or payment was contingent upon a future investment by Enterasys. In the latter, Enterasys agreed to take a debt or equity interest in its customer, in return for that company's agreement to use the related funds to purchase product from Enterasys.

The Commission accepted an offer of partial settlement in this matter from Fiallo, who, without admitting or denying the allegations of the complaint, consented to an injunction against future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder; and from aiding and abetting any violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Fiallo also consented to an officer and director bar and to a provision that upon motion of the Commission the Court will determine whether it is appropriate to order disgorgement of ill-gotten gains and/or impose a civil penalty and, if so, the amount of the disgorgement and/or civil penalty.

Related Actions
Fiallo pled guilty to one count of conspiracy to commit securities, mail and wire fraud and cooperated with the U.S. Attorney's Office for the District of New Hampshire in the prosecution of U.S. v. Barber et al., Criminal No. 04-126 (D.N.H.).

SEC Complaint in this matter