SEC probes of former Riverstone execs revealed

Piyush Patel, former CEO of Cabletron Systems and former chairman of the board of Riverstone Networks was – and still might be – a target of a Securities and Exchange Commission investigation.

Patel, as well as at least six other former Riverstone officials, received “Wells letters” from the SEC indicating the agency’s interest, according to a reorganization plan filed last week by Riverstone’s bankrupt shell, RNI Wind Down Corp.

The disclosure — buried under a definition of “specified former officers and directors” – revealed for the first time that these officers were individual targets. However, it did not indicate the date of the letters, nor whether the SEC was continuing to investigate them.

The only reason the officers are listed is that they have exhausted the company’s legal insurance policy (some $28 million), and several have already put in an additional clains exceeding $5 million for additional legal costs.

The other former officers listed are: Romulus Pereira, Riverstone’s first CEO; Robert Stanton, Riverstone’s former CFO, 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 also holdovers from Cabletron, the company co-founded by former Gov. Craig Benson that was at one time New Hampshire’s largest employer.

The SEC had been investigating allegations that Riverstone inflated its revenue when it was spun off from Cabletron in 2001. But the investigation into the company ended in February after the SEC revoked the company’s trading privileges shortly after it filed for Chapter 11 bankruptcy protection.

The SEC did not disclose whether there were investigation against individuals at the time, nor whether those investigations were continuing.

Calls to the SEC were not returned, but the federal agency generally does not comment on investigations.

Patel, Benson’s hand-picked successor at Cabletron, engineered a split of the company that also resulted in the creation of Enterasys Networks, which was the subject of another SEC investigation into similar charges. Four former Enterasys officers, including a former CEO, pleaded guilty to securities fraud charges. Five others are awaiting trial in November in federal district court in Concord.

The company has since moved to Massachusetts and has been sold to some private investors at about an eighth of the price of the spin off.

Patel went with Riverstone to California, but resigned as chairman in April 2003 and as a board member in December 2003, amid the company’s legal and financial troubles. The company has not filed any accurate financial statements since.

Its assets were sold to Lucent Technologies in a bankruptcy receiving for a total of $197 million, but stockholders are still awaiting distribution of the proceeds. One of the delays is uncertainty about the amount for claims for legal costs put in by Patel and other former officers and directors.

In a filing on July 7, RNI anticipated that the shareholder payout would be more than $1.18 a share. More details should be revealed in a filing next month. – BOB SANDERS