Judge orders probe of Riverstone data

A federal bankruptcy judge has approved an investigation into the possible destruction of data on a computer used by top executives at RNI Wind Down Corporation, the bankrupt shell of Riverstone Networks Inc.

The order, signed last Thursday, would allow the Official Committee of Equity Security Holders to expand its investigation into a “computer matter,” defined as the “preservation or failure to preserve such documents on such Computer, the disposal and/or destruction of any hardware and software.”

The computer was used by “senior executives” at RNI, according to the order. There are only two such executives serving at the present time, interim president Noah Mesel and interim CFO Michael Overby.

The equity committee discovered the missing data last week, said William Baldiga, an attorney representing the committee. Baldiga would not comment on the nature of the missing data, only describing it as “significant.”

The revelation came just as RNI was making its preparations to distribute what’s left of the company after the sale of most of its assets to Lucent Technologies. But how much shareholders get – anywhere from $1 to $1.80 a share, according to an RNI bankruptcy filing – depends on a number of factors, including the equity investigation and claims of former and current officers.

Despite the uncertainty, shareholders are expected to approve the distribution sometime next month, with the hope of an initial check going out before the end of September.

Riverstone, a spinoff of Cabletron Systems, once the state’s largest employer, was created along with the larger Enterasys Networks in 2001. Both companies have been plagued by scandals and economic woes.

Four former Enterasys executives have pleaded guilty to – and five more are awaiting trial on – charges of fraudulently inflating revenue shortly after the spin off.

Riverstone and its top officials faced a Securities and Exchange Commission investigation into similar charges. The investigation against the company was dropped after the company declared bankruptcy in February and the SEC revoked Riverstone’s trading privileges. But the investigation of top officials may still be ongoing.

Unlike most bankrupt companies however, Riverstone – after the $209 million sale of its assets to Lucent – has money to distribute, even after paying off all its secured and unsecured creditors. How much money, however, is unclear, because RNI is not sure how much money it should put aside in various reserves accounts.

Even some of the Lucent sale – though it closed in April – is in dispute. Lucent now says that RNI might have to return as much as $12.5 million.

RNI also might set aside as much as $20 million to satisfy the claims of former officers and directors, who maintain that the company is responsible for legal costs relating to various past, present or future investigations and lawsuits targeting them. More recent officers may be entitled to another $7 million relating to such investigations against them. (The current bankruptcy plan, which has yet to be approved by the court, sets a Sept. 1 deadline for shareholder suits against such officials) Some $400,000 worth of stock options also are in dispute. Indeed, RNI estimates that of the $104 million of claims against the bankrupt estate, some $34 million could be disputed. And that doesn’t even count costs related to the equity committee investigation and other costs involved with the bankruptcy.

Thus the range of the total payout could vary by more than $100 million, from $131 million to $235 million.

Longtime shareholders did get some checks earlier this month in relation to the class action lawsuit against the company that was settled for $18.5 million in March of 2004. But they only received 6.2 percent of their losses. Many were disappointed.

“Got my check … a mere $170.00 for my 12k Shares. PATHETIC,” wrote one investor on the Yahoo Riverstone message board. – BOB SANDERS

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