Riverstone: Insider Sales Programmed

Riverstone says insider selling that started a month before an earnings warning was part of a preset program

March 1, 2002

3 Min Read
Riverstone: Insider Sales Programmed

More than a month before Riverstone Networks Inc. (Nasdaq: RSTN) reported that it would miss its fiscal 2002 fourth-quarter revenue targets, insiders began selling off shares (see Riverstone Savaged on Warning).

On January 11, 2002, four of Riverstone’s top executives, along with two directors in the company, sold more than $3.3 million worth of company stock, according to Thomson Financial.

Coming just a month before the company announced a sales shortfall, the stock sales don't look particularly good. But Riverstone officials say that these particular sales coincided with the company’s new insider-selling program, which began in January.

As a part of this program, four of the company's officers -- Romulus Pereira, president and CEO; Suresh Gopalakrishnan executive vice president of engineering; Robert Stanton, CFO; and John L. Kern, executive vice president, worldwide sales -- all entered the stock selling plan. Chairman of the board Piyush Patel and another board director, Eric Jaeger, also entered the program in January.

Pereira and Patel sold the most shares. Pereira sold 45,200 shares worth $915,621, according to Thomson Financial. And Patel sold 57,300 shares worth $1.6 million.

“While it looks like a large dollar amount to you and me, it’s really a modest portion of what they actually hold,” says Andrew Feldman, vice president of corporate marketing for Riverstone.

Indeed, both Pereira and Patel started out with approximately 1.5 million shares in the company, according to an S-1 filing with the Securities and Exchange Commission (SEC) in June 2001. In January, Pereira sold roughly 3 percent of his holdings, while Patel sold almost 4 percent of his. Feldman says the program allows the officers and directors to sell as much as 15 percent of their offerings over the course of the program. The shares are sold on a monthly basis, and the amount to be sold is determined when the program is begun.

While these stock selling programs are common among top executives, it is still important to note who has begun selling and how much they’ve been selling.

According to Feldman, the lockup on the company’s stock options expired in November. But insiders could only officially begin selling Riverstone stock in December 2001, since they were prohibited from selling right before or immediately after the end of the third fiscal quarter of 2001.

Still, according to Thomson Financial, Patel, Pereira, Gopalakrishnan, and Jaeger were all selling shares as early as August 2001. In fact, Patel sold $1.3 million in Riverstone shares between August and October 2001. Jaeger sold about $1.1 million worth during the same time period. These shares were initially Cabletron Systems Inc. (NYSE: CS) shares, but were converted to Riverstone stock in August when the company officially spun out of Cabletron. These shares were set to expire 90 days after the spin out, says Feldman. Pereira owned 894,463 shares of Cabletron as of March 3, 2001, according to the SEC filing. Patel owned 929,083 shares of Cabletron, Jaeger owned 23,938, and Gopalakrishnan owned 8,750.

Riverstone shares closed up today $0.27 (7.07%) to $4.09.

— Marguerite Reardon, Senior Editor, Light Reading

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