Deputy Attorney General James Comey and United States Attorney Kevin V. Ryan announced  that Thomas Lawrence Butler, a former vice president of Santa Clara-based Cylink Corporation, pled guilty today to an Information charging him with conspiring to commit securities fraud.  These are the first criminal charges to emerge from an investigation into conduct at Cylink, which was forced to restate its earnings substantially for the fourth quarter of 1997 and the first and second quarters of 1998. 

Mr. Butler, 56, now living in Sedona, Arizona, pleaded guilty before United States District Judge James Ware to a one-count criminal Information charging him with conspiracy to falsify Cylink's accounting records, in violation of Title 18, United States Code, Section 371, Title 15, United States Code, Section 78m(b)(5), and Title 17, Code of Federal Regulations, Section 240.13b2-1.  As part of the plea agreement, Mr. Butler has agreed to cooperate with the ongoing investigation into the circumstances leading to Cylink's restatement. 

Mr. Butler was Cylink's Vice President of Sales from March 1997 to November 1998.  Cylink, a publicly traded corporation based in Santa Clara, California, developed and sold network security products. Cylink was acquired by another company in February 2003.

In pleading guilty, Mr. Butler admitted that he agreed with Cylink's then-Chief Financial Officer to record as revenue for the second quarter of 1998 a $903,000 transaction between Cylink and Federal Data Corporation (FDC) in violation of Generally Accepted Accounting Principles (GAAP).  Mr. Butler admitted that the June 1998 purchase order from FDC included an "out letter" permitting FDC to cancel the purchase if it did not receive an order for the products from its end-user.  Mr. Butler admitted that he knew, as a result of the terms in the "out letter"  – in particular, because FDC had not made a firm commitment to purchase the product – that the transaction could not properly be recorded as revenue for the second quarter.

Mr. Butler is scheduled to be sentenced on May 17, 2004 by U.S. District Judge James Ware.  Mr. Butler faces a maximum penalty of five years in prison and a fine of $250,000.  The actual sentence, however, will be dictated by the Federal Sentencing Guidelines, which take into account a number of factors, and will be imposed in the discretion of the Court. 

The prosecution is the result of an investigation by the Federal Bureau of Investigation along with the U.S. Attorney's Office, and in cooperation with the Securities and Exchange Commission.  Dave Callaway is the Assistant U.S. Attorney who is prosecuting the case.  The case was brought under the auspices of the Corporate Fraud Task Force, headed by Deputy Attorney General Comey.  The Task Force was created by President Bush in July 2002 to oversee and direct federal law enforcement actions against corporate corruption that had eroded investors' confidence in the integrity of U.S. markets.

In announcing the guilty plea, U.S. Attorney Ryan, a member of the President's Corporate Fraud Task Force, said, "This is yet another example of a company that, with knowledge of insiders at the highest levels, misstated its financials for the purpose of misleading investors.  We have and will continue to prosecute CFOs, CEOs, general counsel and other top corporate officers who abuse the trust of investors by fraudulently cooking the books in order to meet quarterly expectations."