Riverstone officers seek legal funds
Present and past officers of the bankrupt shell of Riverstone Networks want to use shareholder money to defend themselves against an official shareholder committee investigation them.
The investigation is aimed at sorting out who owes what to whom relating to past and present allegations of fraud, and the legal costs related to such charges.
Riverstone, a spinoff of the former Cabletron Systems – once New Hampshire’s largest employer – filed for bankruptcy in February and sold its assets to Lucent Technologies at the end of April. That left RNI Winddown Corp. and its officers with the proceeds of the sale, the debt and possible liability.
This liability is more than theoretical, since Riverstone was the target of an Securities and Exchange Commission investigation into charges that it fraudulently inflated revenue immediately after Cabletron spun it off in 2001.
Because of this investigation, Riverstone never filed accurate financial statements. The investigation into the company was dropped in February after the company agreed to stop publicly trading its stock, but an investigation into certain individuals might continue. Four officials from Enterasys Networks – Cabletron’s other spinoff – have pleaded guilty – and another five are awaiting trial on similar charges.
While the bankruptcy court already has approved a special insurance policy and bonus to retain key officers in the company, it is unclear if and when such a policy would cover an internal investigation by the Equity Holders Committee. That committee is conducting an investigation into all possible claims against RNI, to see how much could be set aside before distributing what’s left to shareholders.
Three former officers – all dating back to Cabletron days – have put in claims of $5.65 million relating to previous and expected legal costs.
Those three former officers – former CEO Romulus Pereira, former CFO Robert Stanton and Suresh Gopalakrishnan, former chief technology officers last week argued that since they were targets of former SEC investigations, and since they all have filed related claims against the company, they would be a target of the new investigation as well.
Whatever the court decides would ultimately be paid by shareholders, who should get whatever is left of the estate after all claims and legal costs are paid off. Shareholders had hoped to get as much as $1.50 a share – about a tenth of the rice that shares sold for when Riverstone was spun off by Cabletron in 2001 – but still more than most shareholders can expect from a bankrupt company. However, the amount is dwindling as bankruptcy proceedings roll on. In April, according to the most recent financial statement, management fees and bonuses amounted to $5.4 million, and professional fees due to the reorganization amounted to $1.9 million. – BOB SANDERS
