UNITED STATES DISTRICT COURT 

DISTRICT OF NEW HAMPSHIRE 

Securities and Exchange 

Commission, 

Plaintiff 

v. Civil No. 07-cv-39-SM 

Opinion No. 2011 DNH 129 

Eric Jaeger and 

Jerry A. Shanahan, 

Defendants 

O R D E R 

In February of 2007, the Securities and Exchange Commission 

(“SEC”) filed suit against ten defendants, seeking injunctive 

relief under 15 U.S.C. § 77t(b) and 15 U.S.C. §§ 78u(d) and (e) 

for alleged violations of the Securities Act of 1933, the 

Securities Exchange Act of 1934, and several rules promulgated 

under those statutes. The court granted various motions to 

dismiss and the SEC filed a First Amended Complaint. Again, 

several defendants moved to dismiss. And, again, the court 

granted those motions, either in full or in part. 

Subsequently, the SEC settled its claims against a number of 

defendants. Two claims remain against Defendant Eric Jaeger: an 

aiding-and-abetting claim under Rules 10b-5(a) and (c) (Count 

III) and a falsification-of-books-and-records claim (Count IV) . 

Jaeger moves for summary judgment. The SEC objects. For the 

reasons discussed, Jaeger’s motion is denied. 

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Standard of Review 

When ruling on a motion for summary judgment, the court must 

“view the entire record in the light most hospitable to the party 

opposing summary judgment, indulging all reasonable inferences in 

that party’s favor.” Griggs-Ryan v. Smith, 904 F.2d 112, 115 

(1st Cir. 1990). Summary judgment is appropriate when the record 

reveals “no genuine issue as to any material fact and . . . the 

moving party is entitled to a judgment as a matter of law.” Fed. 

R. Civ. P. 56(c). In this context, “a fact is ‘material’ if it 

potentially affects the outcome of the suit and a dispute over it 

is ‘genuine’ if the parties’ positions on the issue are supported 

by conflicting evidence.” Int’l Ass’n of Machinists & Aerospace 

Workers v. Winship Green Nursing Ctr., 103 F.3d 196, 199-200 (1st 

Cir. 1996) (citations omitted). 

Nevertheless, if the non-moving party’s “evidence is merely 

colorable, or is not significantly probative,” no genuine dispute 

as to a material fact has been proved, and “summary judgment may 

be granted.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-

50 (1986) (citations omitted). The key, then, to defeating a 

properly supported motion for summary judgment is the nonmovant’s ability to support its claims concerning disputed 

material facts with evidence that conflicts with that proffered 

by the moving party. See generally Fed. R. Civ. P. 56(c). It 

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naturally follows that while a reviewing court must take into 

account all properly documented facts, it may ignore a party’s 

bald assertions, unsupported conclusions, and mere speculation. 

See Serapion v. Martinez, 119 F.3d 982, 987 (1st Cir. 1997). 

Discussion 

I. Count III. 

In a prior order, the court construed the SEC’s claims 

against Jaeger in Count III of the First Amended Complaint as 

follows: 

Because the SEC has failed to state Securities Act 

claims against Jaeger under any of the three theories 

it advanced, it has necessarily failed to state a claim 

for direct liability under Rule 10b-5. The SEC has, 

however, stated aiding-and-abetting claims against 

Jaeger under Rules 10b-5(a) and (c) , based on his 

involvement in the transactions with iPolicy (Am. 

Compl. ¶¶ 160- 2) , Centricity (¶¶ 168-69), and Everest 

(¶¶ 218- 23) , subject to the same proviso that was 

applied to Kirkpatrick’s Securities Act course-ofbusiness claims. 

September 30, 2009 Order (document no. 209) at 118 (emphasis 

supplied). 

To establish its aiding-and-abetting claims against Jaeger 

under Rules 10b-5(a) and (c) , the SEC must prove that: 

(1) a primary violation 10b-5(a) and/or (c) was 

committed; and 

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(2) Jaeger was aware of that primary violation; and 

(3) Jaeger knowingly or recklessly provided 

substantial assistance to the primary violator(s) 

of the rule. 

See 15 U.S.C.A. § 78t(e). See also SEC v. DiBella, 587 F.3d 553, 

566 (2d Cir. 2009); SEC v. Johnson, 530 F. Supp. 2d 325, 332 

(D.D.C. 2008). 

Jaeger’s motion insists that the “most that can be said is 

that [he] was one of several employees who assisted with certain 

elements of these three transactions, but without any role or 

indeed knowledge of how the revenue from them would - or would 

not - be recognized.” Reply Memorandum (document no. 249) at 2. 

But, the SEC points to sufficient evidence, if credited by a 

trier-of-fact, to establish Jaeger’s aiding-and-abetting 

liability. 

First, there is ample evidence to support the conclusion 

that employees of Cabletron, Enterasys, and Aprisma violated 

Rules 10b-5(a) and (c) as part of the scheme(s) to recognize 

revenue from transactions that did not generate recognizable 

revenue, thereby misstating revenue amounts on corporate 

financial statements. As to the second and third elements, the 

SEC points to sufficient evidence to create genuine (i.e., trialworthy) issues of material fact: 

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Jaeger negotiated and finalized the iPolicy, Everest 

and Centricity transactions [at a time] when: 1) he was 

fully apprised of the criteria for revenue recognition; 

2) he was one of Cabletron’s Authorized Representatives 

to approve sale transactions that did not meet the 

criteria; 3) he took the lead in drafting the guidance 

on revenue that was reported at analyst calls; 4) he 

reviewed and made changes to the financial statements 

throughout the relevant period and in particular for 

the quarters in which revenue was reported on these 

three transactions. Jaeger was responsible for giving 

transaction documents to accounting. Jaeger interfered 

with the process of giving proper documentation to 

outside auditors, who could have corrected the improper 

revenue for the transactions. Jaeger aided and abetted 

the primary violation of Section 10(b) of the Exchange 

Act and Rule 10b-5 thereunder. 

Memorandum in Opposition to Summary Judgment (document no. 234) 

at 23. 

With respect to the iPolicy transaction, for example, the 

SEC has pointed to evidence suggesting that Jaeger was fully 

aware of (and actually negotiated) the terms of the transaction, 

by which iPolicy would receive funds from Cabletron and then 

immediately turn around and purchase goods with those funds from 

Aprisma. See, e.g., Memorandum in Opposition to Summary 

Judgment, Exhibits 19, 20, and 21. In fact, because the iPolicy 

transaction was “nonstandard,” it had to be approved by an 

authorized Cabletron Representative like Jaeger. See Exhibit 4. 

There is also evidence suggesting that Jaeger was aware that 

Aprisma needed to (and, in fact, would) recognize revenue from 

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the iPolicy transaction, in order to meet its quarterly income 

projections. See, e.g., Exhibit 27 (e-mail dated April 10, 2001, 

from Jaeger to the CEO of Cabletron and the CEO of Aprisma, 

saying “I spoke today with Lisa Lentz and Jack Huffard. We 

clear[l]y do not have enough investment deals in the pipe to 

close the gap. Now is the time to get creative. I am pushing 

Jack to look for more security MSPs and to cull through his other 

deals. Aprisma must also help source more deals.”); Exhibit 26 

(Transcript of June 27, 2001, Q1 FY02 Cabletron conference call, 

at which Jaeger was present and at which Aprisma announced its 

(improperly calculated) quarterly earnings, which included 

revenue from the iPolicy transaction). 

And, finally, there is evidence supportive of the SEC’s view 

that Jaeger had a sufficient understanding of accounting 

principles to fully realize that Aprisma could not properly 

recognize revenue from the transaction with iPolicy. See 

generally Exhibit 52 (describing Jaeger’s extensive experience, 

as an attorney in private practice, with “public offerings, 

venture capital financings, mergers and acquisitions and 

corporate partnering”); Exhibit 10 (showing Jaeger’s familiarity 

with proper revenue recognition principles, as he prepared profit 

and loss statements for Cabletron’s four operating companies); 

Exhibit 4 (discussing “Cabletron’s General Revenue Recognition 

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Rules,” outlining end-of-quarter booking requirements, and 

identifying Jaeger as one of only four “Authorized Cabletron 

Representatives,” by whom all terms and conditions of 

transactions with resellers had to be reviewed and approved); 

Exhibit 34 (e-mail in which Jaeger wrote, “I would like to spend 

at least 15 minutes w/ Piyush and Henry taking them through the 

balance sheet, the changes we have made and the explanations for 

the issues that remain. Henry is on the front lines with the 

investors, and we do not want him caught off-guard.”); Exhibit 46 

(series of e-mails in which Jaeger was asked for “all of the R&D 

investment related documents for deals that closed during Q1,” so 

they could be provided to the outside auditors - documents which 

Jaeger apparently never provided to the outside auditors). 

I I. Count IV. 

In its order of September, 2009, the court described the 

claims in Count IV of the SEC’s amended complaint against Jaeger 

as follows: 

The amended complaint alleges that Jaeger negotiated 

and finalized a reciprocal purchase agreement with 

Everest (Am. Compl. ¶ 218) that included terms that 

would preclude revenue recognition under GAAP (¶¶ 219-

22) , yet he failed to inform the finance department of 

those terms (¶ 296), thus causing the creation of 

corporate books and records that falsely described the 

transaction. Again, presuming that one who finalizes a 

deal has a responsibility to report its terms to the 

finance department, the SEC has stated a falsification7 

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of-books-and-records claim against Jaeger under 15 

U.S.C. § 78m(b)(5) and Rule 13b2-1. 

September 30, 2009 Order at 119. That statute provides that “No 

person shall knowingly circumvent or knowingly fail to implement 

a system of internal accounting controls or knowingly falsify any 

book, record, or account described in paragraph (2).” 15 U.S.C. 

§ 78m(b)(5). And, Rule 13b2-1 provides that “No person shall 

directly or indirectly, falsify or cause to be falsified, any 

book, record or account subject to Section 13(b)(2)(A) of the 

Securities Exchange Act.” 17 C.F.R. § 240.13b2-1. 

With respect to the “knowing” requirement of section 

78m(b)(5), the SEC need not demonstrate that Jaeger was actually 

aware that he was violating the law. Instead, it need only show 

that he was aware of the falsification and did not act through 

ignorance, mistake, or accident. See, e.g., U.S. v. Reyes, 577 

F.3d 1069, 1080 (9th Cir. 2009); SEC v. Kelly, 765 F. Supp. 2d 

301, 322 (S.D.N.Y. 2011). Consequently, evidence that Jaeger 

misled company auditors can support the SEC’s claim that he 

knowingly circumvented a company’s system of internal accounting 

controls. See, e.g., SEC v. Retail Pro, Inc., 673 F. Supp. 2d 

1108, 1142 (S.D. Cal. 2009). Similarly, evidence that Jaeger 

“contributed to the issuance of materially misleading financial 

statements,” is sufficient to establish liability under Rule 

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13b2–1. SEC v. Lucent Technologies, Inc., 610 F. Supp. 2d 342, 

370 (D.N.J. 2009). 

In addition to the evidence summarized above, the SEC points 

to the following in support of its claims: (1) as early as 1999, 

Jaeger was made aware of the revenue recognition criteria for 

Cabletron and its subsidiaries (Exhibit 4) ; (2) all corporate 

press releases concerning “revenue, revenue growth, gross margin, 

operating margin, etc.” had to be approved by one of two people: 

Piyush Patel or Eric Jaeger (Exhibit 7) ; Jaeger controlled, or 

had substantial influence over, which documents were provided to 

the outside auditors (Exhibits 28, 43, 44, 45, 46) . 

So, for example, with regard to Jaeger’s role in Enterasys 

having improperly recognized revenue from its transaction with 

Everest, the SEC says: 

Jaeger’s involvement with books and records related to 

Everest demonstrate his liability for violations of 

Section 13(b)(5) and Rule 13b2-1 thereunder. The 

revenue from Everest was reported in the second quarter 

of fiscal year 2002 (September 2001), the quarter in 

which Enterasys became a public company, and that 

revenue helped Enterasys achieve the coveted $20 

million it had been looking for throughout the quarter. 

Jaeger was aware of the shortfall and the need to find 

$20 million in revenue. Exh. 31. Jaeger knew that 

Enterasys achieved the $20 million in sales and that 

Everest was part of the total amount. Exh. 43. “Great 

[effort last week] but the work is not over.” Jaeger 

then dictated to the CFO of Enterasys what documents 

should not be given to the outside auditor, KPMG. Id. 

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Evidence shows that the documents for the Everest 

transaction were not given to KPMG. Exh. 44. Jaeger 

reviewed the financial statements that were going into 

the public filings for the quarter on September 16, 

2001. Exh. 48. 

Memorandum in Opposition to Summary Judgment (document no. 234) 

at 24. 

And, with respect to Jaeger’s role in Aprisma’s improperly 

recognizing revenue from its non-recurring engineering agreement 

with iPolicy (which the SEC describes as a “round trip of cash” 

from Cabletron to iPolicy), the SEC says: 

Jaeger’s intent is also demonstrated by his conduct 

with respect to iPolicy. In that transaction 

accounting asked Jaeger for documents on June 4, 2001 

which was quarter close. Jaeger told accounting they 

are just tying up loose ends but in fact, the 

transaction documents had not even been signed. Exh. 

46. Aprisma improperly recognized revenue in the 

quarter and iPolicy was one-third of that improper 

revenue. 

Id. at 25. 

The foregoing evidence, along with the addition evidence 

cited in the SEC’s memorandum (document no. 234) and its 

statement of disputed facts (document no. 235) is sufficient, if 

credited by a trier-of-fact, to warrant the conclusion that 

Jaeger violated section 78m(b)(5) and/or Rule 13b2-1. 

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Conclusion 

For the foregoing reasons, as well as those set forth in the 

SEC’s legal memorandum and its statement of disputed facts, the 

existence of genuinely disputed material facts precludes the 

entry of judgment as a matter of law in favor of Defendant 

Jaeger. Accordingly, his motion for summary judgment (document 

no. 224) is denied. 

Jaeger’s motion to entirely strike the declaration of Steven 

Henning (document no. 248) is likewise denied. The court is 

aware of the requirements imposed by Rule 56 and, in ruling on 

Jaeger’s motion for summary judgment, it has not considered those 

portions of the affidavit offering inadmissible statements (e.g., 

FBI Form 302 reports) or inadmissible portions of the Henning 

report. 

SO ORDERED. 

August 19, 2011 

cc: All Counsel of Record 

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