Missing computer files focus of new Riverstone charges

The current president of the bankrupt shell of Riverstone Networks is obstructing a shareholder investigation, the Official Committee of Equity Security Holders charged last week.

The committee alleges that Noah Mesel, president of RNI Wind Down Corporation and Riverstone’s top lawyer dating back from the beginning of 2004, deleted files from the company’s laptop hard drive and then either got rid of or misplaced his the hard drive altogether, even though he knew that the files should be preserved.

As a result, the committee may be missing correspondence related to a Securities and Exchange Commission investigation into accounting fraud at Riverstone following the company’s 2001 spinoff from Cabletron Systems or from the SEC decision to revoke the company’s trading privileges following its bankruptcy filing in February and the subsequent sale in May of the bulk of its assets to Lucent Technologies.

As a result of Mesel’s actions, the committee said, it is trying to reconstruct the correspondence on back-up tapes, an expensive process that will delay and impede the investigation, which is being paid for by shareholders. They argued that this showed that Mesel was not complying with the investigation, and therefore the probe’s results concerning Mesel should no longer be considered confidential. A bankruptcy judge scheduled a meeting on the committee’s motion for Thursday.

Mesel, in a sworn written statement dated Aug. 3, said that he deleted the files following the February bankruptcy filing at the advice of an attorney. He said he did this because his hard drive was full and giving him problems and because the SEC investigation against the company had been dropped. He said he understood that the deleted files were maintained by his administrative assistant and on the network services.

His hard drive, however, continued to give him problems, so in May – after it was clear that the Equity Committee would conduct an investigation – he asked for a new hard drive. He said he transferred the work-related files that were not deleted to the new laptop’s hard drive, but when he tried to transfer personal files to a home computer, “it appeared to me that the drive had failed and I disposed of the old hard drive.”

The committee filing said that, subsequently, during a deposition Mesel “retracted” the statement that he disposed of the hard drive and now asserts that the hard drive is missing. The committee said that this was an example of a “misleading” statement or of omitting facts to make sure the statements were not misleading.

The Equity Committee also filed notice that it plans to depose Piyush Patel, the former chairman of Riverstone’s board and ex-CEO of Cabletron Systems.

Patel was the hand-picked successor of Craig Benson, a co-founder of Cabletron who later went on to serve a term as New Hampshire’s governor.

The committee also wants to question under oath six other former top Riverstone officials, who were once – and still could be – targets of an SEC investigation: Romulus Pereira, Riverstone’s first CEO; Robert Stanton, Riverstone’s former chief financial officer; William McFarland, former vice president of finance; John Kern, former executive vice president for worldwide sales and services; Daniel Harding, former vice president of business development; and Andrew Feldman, director of marketing.

Pereira, Stanton, Harding and Feldman were holdovers from Cabletron.

The Equity Committee is disputing these former executives’ claims that RNI should reimburse them for millions of dollars in legal fees related to the SEC investigation. – BOB SANDERS