Kern Decreases Riverstone Stake

It's been tough sledding for Riverstone Networks Inc. (Nasdaq: RSTN) this year, and at least one big shareholder is quietly backing away from the router maker.

New York-based Kern Capital Management disclosed in a Securities and Exchange Commission (SEC) filing this week that it has cut its Riverstone holdings by nearly half. The stock brokerage held about 12 percent of Riverstone's shares in February, but now holds about 6.4 percent, according to the July 10 filing.

Kern wouldn't comment on its change in position. But one could look at plenty of reasons why an investor would be skittish.

The SEC announced a formal investigation into Riverstone's accounting practices last month (see Riverstone Branded 'E' by Nasdaq). This was an escalation of some back-and-forth the SEC and Riverstone have had since at least April (see Accounting for Riverstone's Problems).

And the sales are not improving. Revenues for Riverstone's first fiscal quarter of 2004 fell by about 58 percent from the year-ago period. Meanwhile, losses for the same period increased 20 percent. Naturally, SARS is to blame (see Riverstone Ailing in Asia). Now it faces a possible delisting after failing to file its annual report on time (see Riverstone Posts Loss, Faces Delisting).

Riverstone's troubles aside, Kern certainly isn't singling the company out by way of lightening its telecom and tech load. Kern held about 14 percent of Stratos Lightwave Inc.'s (Nasdaq: STLWD) shares as of its February filings, but it disclosed yesterday that it had gotten rid of the whole lot.

Kern also holds about 5 percent of F5 Networks Inc. (Nasdaq: FFIV) and APA Optics Inc. (Nasdaq: APAT). It holds around 12 percent of Vixel Corp. (Nasdaq: VIXL), a SAN switch maker, according to SEC filings (see Can Vixel Get Rich in Switch Niche?).

Shares of Riverstone were up a penny (0.7%) to $1.40 in early afternoon trading Friday. Riverstone's stock price has been below $2 since mid February.

— Phil Harvey, Senior Editor, Light Reading

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