SEC settles with Enterasys

Networking supplier Enterasys Networks has settled its case with the US Securities and Exchange Commission after a 13-month...

Networking supplier Enterasys Networks has settled its case with the US Securities and Exchange Commission after a 13-month investigation into its financial reporting practices.

The settlement does not include penalties or fines and does not require additional adjustments to the company's past financial statements.

"We are extremely pleased to have this matter behind us," said chief executive officer William O'Brien. "This settlement effectively resolves the company's outstanding issues with the SEC, bringing closure to historical reporting matters and marking the end of a long and difficult process."

Enterasys "co-operated fully with the SEC in a very thorough review of complex accounting issues and [is] pleased that the settlement recognises the company's efforts," O'Brien added.

"Having implemented additional internal controls, established and expanded the internal audit function and introduced other process improvements over the past year, Enterasys is committed to the highest level of integrity in its financial reporting."

The company's troubles began last February when it reported that it had discovered financial accounting questions related to the terms of a $4m sales contract recorded by its Asia/Pacific operations.

Three senior employees were fired as a result of the investigation into the accounting practices. The SEC conducted a formal, non-public investigation of historical revenue-recognition issues at Enterasys and its affiliates, including subsidiary Aprisma Management Technologies.

Under the settlement, Enterasys did not admit or deny the allegations against it, and agreed to a cease-and-desist order requiring future compliance with the federal securities laws and regulations. The company also appointed an internal auditor who reports directly to the audit committee of Enterasys' board of directors as part of the settlement.

Jim Slaby, an analyst at Giga Information Group, called the settlement "a big hurdle for them in terms of rebuilding".

Mark Fabbi, an analyst at Gartner, said Enterasy's new CEO played a key role in co-operating with the SEC and helping to make internal changes in the company that satisfied government investigators. "It's not a bad scenario at this point," Fabbi said. "Clearly, they have a long way to go."

Fabbi added that while some of the company's products are ripe for updates, its base is still pretty solid and that research and development has continued throughout the past year. "They're still a viable alternative in the marketplace," he said.

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