SEC bars public trading of Riverstone shares
The Securities and Exchange Commission Friday revoked Riverstone Networks’ registration that allows it to publicly trade stock, ending a long-standing investigation against the company, though not necessarily against individuals associated with the firm.
On Tuesday, the Cabletron Systems spin-off, filed for Chapter 11 bankruptcy protection as part of a pending $170 million asset sale to Lucent Technologies.
The SEC revocation, proposed by Riverstone, didn’t mention pending investigations into inflating revenue revealed by the company in earlier SEC filings — and echoed by class action lawsuits settled earlier this year.
The revocation was a response to Riverstone’s failure to file required audited financial statements with the SEC. Annual statements have not been filed since March 2 2002, and quarterly statements have not been filed since November 2003, largely because of the SEC investigation. The failure to file had caused the Nasdaq exchange to delist the company.
Its stock had been trading on the pink sheets, but trading in Riverstone shares suddenly stopped ended Friday morning without warning. Following the SEC revocation, brokers registered with the SEC are no longer allowed to buy or sell Riverstone stock through any exchange. Shareholders can either directly trade their stock privately or wait to see what they get through bankruptcy proceedings.
Shareholders are usually the last in line in bankruptcy proceedings, but in this case Riverstone’s share price nearly doubled to slightly over $1 after news Feb. 7 of its impending sale to Lucent, largely because investors believed that the company had a strong cash position. In its last unaudited earnings release, the company said it had $120 million in cash in securities at August 27, 2005.
However, in the bankruptcy filing the company said that on Dec. 24 claimed it only had $98 million in assets and $130 million in liabilities. The only major debt listed by the company was $66 million to bondholders, though more details are expected in subsequent filings.
Riverstone, and its attorneys, did not return calls to explain the discrepancy by deadline.
Although the plan is to sell the assets to Lucent, other companies might bid on Riverstone. Bidders would have to submit bids prior to March 16, if Riverstone’s bankruptcy filing is accepted by the court. A hearing on the bids (known as a sales hearing) would be scheduled to take place a week later, March 23.
Cabletron, once New Hampshire’s largest employer, spun off Riverstone in 2001 at $14 a share, a move that at the time was designed to increase shareholder value. Riverstone has since moved its headquarters to California and more than half of its workers to India.
Another Cabletron spin-off, Enterasys Networks, has since moved to Massachusetts. Its share shareholders are scheduled to vote later this month on the company’s sale to private investors, at a price that amounts to about an eighth of the stock’s value at the time of the spin-off in 2001.
Several former Enterasys executives are scheduled to go on trial early next month for securities fraud. – BOB SANDERS