Redback's Arnold Included in SEC Suit

Redback Networks Inc.'s (Nasdaq: RBAK) senior VP of field operations, Joel Arnold, has his hands full.

Less than two months ago, he was named to a special leadership team during Redback's restructuring (see Redback Trims Losses, CFO). Now Arnold is among the group of former Qwest Communications International Inc. (NYSE: Q) executives being sued by the Securities and Exchange Commission (SEC) for fraud.

Prior to joining Redback, Arnold was the former senior vice president of Qwest's Global Business Unit. Representing more than $6 billion in revenue and more than 5,000 people, the division dealt with all of Qwest's large business customers, according to Arnold's management bio on Redback's Website.

The SEC alleges that Arnold and other current and former Qwest executives helped to inflate the carrier's revenues by about $144 million in 2000 and 2001. They did this in order to meet Qwest's earnings projections and revenue expectations, according to the suit filed by the SEC this week.

The SEC's civil suit comes in tandem with a 12-count federal indictment handed down this week (see Prosecutors' Party at Qwest). That indictment alleges that four former Qwest executives in the Global Business Unit tried to fill an expected revenue gap in the second quarter of 2001.

In its civil suit, the SEC is specifically concerned with transactions involving sales of Internet equipment and services to the Arizona School Facilities Board (ASFB) and Genuity Inc. (Nasdaq: GENU).

Qwest recognized approximately $33.6 million in revenue in the quarter ended June 30, 2001. The SEC alleges that had it not been for the ASFB transaction -- wherein Qwest immediately recognized revenue, while holding the merchandise for later delivery, in violation of SEC requirements -- Qwest would have fallen short of its projected 12 to 13 percent revenue growth for the quarter.

In the Genuity matter, the SEC alleges that Qwest improperly recognized revenue of approximately $2.6 million in the quarter ended Sept. 30, 2000, and an additional $8 million in the year ended Dec. 31, 2000, for services that Qwest had not yet provided.

Redback says it has no comment because the matter doesn't concern them. Besides the civil suit, however, the SEC is also seeking to permanently bar Arnold and the others from acting as directors or officers of any publicly held company. If that situation were to be realized, Arnold's career path at Redback would obviously be hindered.

Calls to Arnold's attorney had not been returned by press time.

— Phil Harvey, Senior Editor, Light Reading

randy2000 12/5/2012 | 12:33:16 AM
re: Redback's Arnold Included in SEC Suit Shouldn't Redback put him on leave of absence pending the suit outcome or even force him to quit? Or his buddy, the CEO, will try to protect his job??
Avid_Reader 12/5/2012 | 12:33:07 AM
re: Redback's Arnold Included in SEC Suit Let's just say, it would not be unfair for you to presume that every senior manager in Redback has gone the distance and then some to satisfy this tyrant. He's a menace to the industry and the board should boot him out!
Searay54 12/5/2012 | 12:33:04 AM
re: Redback's Arnold Included in SEC Suit What is it about Kevin Denuccio's leadership. First it was the Cisco scandal with his direct report Ms Trafficani, well cronicoled in WSJ, for her questionable business practices with Cisco Capital funded customers. Now Joel Arnold, selling networking equipment ( I wonder who's ) on a questionable contract. He seems in really inspire ethics and integrity. These things do seem to follow him.
BobbyMax 12/5/2012 | 12:32:45 AM
re: Redback's Arnold Included in SEC Suit It appears to me that Joel Arnold would have to leave his position. Mr. Arnold's continued presence at Redback would damage the image of the company. he situation at Qwest is very serious. Mr. Nachio ( former CEO of Qwest) is involved in lot of deceptions.
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