RealTime IT News

IT Braces Against New Enron Aftershock

Call it the Enron double whammy. First, companies with accounting questions saw investors dump millions of shares in an Enron-inspired sell-off. Now, these same firms, face a related, and potentially more serious, threat -- class action lawsuits.

"My suspicion is that in light of the Enron debacle, there will be a lot more accounting-oriented class actions," said Gordon P. Katz, a partner with the Boston law firm Holland & Knight.

You needn't tell Enterasys Networks . Two weeks ago, the Portsmouth, N.H., networker and Cabletron progeny was making strides after a train wreck year for telecom gear makers.

Enterasys' stock, which had dipped has low as $6 in October, regained double digits as it prepared to launch its Aprisma subsidiary as a separate public company.

Then it discovered "inconsistencies" in a $4 million Asia-Pacific contract. Hours later, the Securities and Exchange Commission wanted to see its books, apparently on an unrelated matter.

Company officials scrambled to reassure stakeholders. A "forensic" accounting team had been dispatched to determine the scope of the problem. And, of course, Enterasys is cooperating fully with the SEC (neither will discuss the focus of the federal probe).

But despite textbook crisis management, the damage has been done. The stock was halved, the spinout shelved indefinitely, and the company sued by four law firms.

Enterasys isn't alone. Tyco , an Exeter, N.H., maker of fiber-optic cable among other things, has been slapped with a shareholders' suit claiming it used accounting tricks to mask its financial health.

And elsewhere, there are red flags going up among both old and new economy stalwarts that could trigger litigation.

Editor's note: Please see page 2 for ways to protect against class actions