Litigation Release No. 19998 / February 12, 2007

Securities and Exchange Commission v. Gayle Spence Luacaw, Civil Action No. 07CV037 (D.N.H.)

On February 8, 2007, the Securities and Exchange Commission filed a civil fraud action against Gayle Spence Luacaw in United States District Court for the District of New Hampshire. The Commission's complaint seeks an injunction against future violations of Section 17(a) of the Securities Act of 1933 and 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. Additional relief requested includes disgorgement plus prejudgment interest and a civil money penalty.

According to the Commission's complaint, from March 2000 through December 2001, Luacaw, a former vice president for the Executive Office of the President 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 Luacaw 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 an 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 those funds to purchase product from Enterasys.

Related Actions
Luacaw pled guilty to one count of conspiracy to commit securities 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