On December 22, 2003, the Court entered the Judgment in accordance with the Order and Final Judgment entered by U.S. District Judge Steven J. McAuliffe and dated December 19, 2003. The case was closed. On January 18, 2005, the Court further entered the Order authorizing the distribution of the settlement fund.
According to a Business Wire article dated October 17, 2003, investors have agreed to settle their lawsuit against Enterasys Networks, Inc., for $17 million in cash, stock valued at $33 million and major improvements to the company's corporate governance. The agreement was negotiated by the court-appointed lead
plaintiff, the Los Angeles County Employees Retirement Association (LACERA), and
requires court approval.
The Complaint alleges that defendants violated Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by
issuing a series of material misrepresentations to the market between September
26, 2001 and February 1, 2002, thereby artificially inflating the price of
Enterasys securities. Throughout the Class Period, as alleged in the complaint,
defendants issued statements regarding Enterasys' quarterly financial
performance and filed reports confirming such performance with the United States
Securities and Exchange Commission ("SEC"). The complaint alleges that these
statements were materially false and misleading because, among other things, (i)
the Company's Asia Pacific region operations, which represented a material
portion of the Company's revenues, was improperly recognizing revenues in
violation of the Company's accounting policies and Generally Accepted Accounting
Principles. As a result, Enterasys' operating results were materially
misrepresented and overstated; (ii) Enterasys lacked adequate internal controls
and was therefore unable to ascertain the true financial condition of the
Company; and (iii) based on the foregoing, defendants' statements concerning the
prospects of Enterasys were lacking in a reasonable basis at all times.
On February 1, 2002, after the close of the market, Enterasys shocked the
market when it announced that it would be delaying the release of its fourth
quarter and fiscal year financial results because it was reviewing the revenue
recognition practices of its Asia Pacific operations. The Company also announced
that it was being investigated by the SEC. In response to these disclosures, on
February 4, 2002, the first day of trading following the Company's announcement,
shares of Enterasys closed at $4.20 per share, a loss of more than 61% since its
previous close of $10.80 on February 1, 2002, on volume of more than 35 million
NOTE (from First Consolidated Amended Complaint): This action is brought as a class action by Lead Plaintiff Los Angeles County Employees Retirement Association pursuant to Section 21D of the Securities Exchange Act of 1934, on behalf of itself and all other persons or entities who purchased the common stock of Cabletron Systems, Inc. between June 28, 2000 through and including August 3, 2001 and all persons and entities who purchased the common stock of Enterasys Networks, Inc. between August 6, 2001 through and including February 1, 2002.