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Financial

Redback Exec Part of Criminal Probe

Redback Networks Inc. (Nasdaq: RBAK) says it won't comment on the fact that one of its top executives is a subject of a criminal investigation. Redback's senior VP of field operations, Joel Arnold, is the subject of a criminal investigation for securities fraud, according to a motion filed last month by the U.S. attorney's office of Colorado.

Arnold and several other former Qwest Communications International Inc. (NYSE: Q) executives are the subject of a Securities and Exchange Commission (SEC) civil suit that alleges they inflated Qwest's revenues by about $144 million in 2000 and 2001 in order to meet earnings projections and revenue expectations (see Prosecutors' Party at Qwest and Redback's Arnold Included in SEC Suit). Federal prosecutors are asking the SEC to shelve their case, for now, so that the criminal investigation can go forward.

In the filing, the U.S. attorney's office says that the SEC's civil case might lead to some crucial information in the federal case to be prematurely disclosed. More interestingly, the filing confirms that Arnold is part of a federal criminal investigation, an item that was not mentioned in the SEC's civil suit.

Redback CEO Kevin DeNuccio tried to downplay Arnold's troubles in a February email to employees, Light Reading has learned. "The charges brought against Joel by the SEC are civil charges, not criminal charges," DeNuccio wrote. "Joel is not one of the four individuals indicted in the criminal proceedings."

DeNuccio expressed his support for Arnold in that email and said that Redback's executive team is "fully supportive" of him. That was, of course, before it became apparent that Arnold is dealing with a potentially more troubling situation.

If Arnold is found innocent in the federal investigation, he would then have to contend with the SEC, which, as part of its civil action, is trying to permanently bar Arnold and the other former Qwest executives from acting as directors or officers of any publicly held company.

— Phil Harvey, Senior Editor, Light Reading

lightreceding 12/5/2012 | 1:09:38 AM
re: Redback Exec Part of Criminal Probe Vinod had a relationship with Redback prior to the Siara merger. He was instrumental in making the merger happen due to his prior relationship with Redback. Vinod was able to cash out Redback stock through the merger and was saved having to take Siara public as the down turn was happening.
capolite 12/5/2012 | 12:07:47 AM
re: Redback Exec Part of Criminal Probe Everyone is innocent until proven guilty and Joel hasn't been charged with anything yet. Kevin was aware of the shenanigans going on at Qwest from his dealings at Cisco with Qwest. I can't imagine Joel is delivering value to Redback's long suffering shareholders right now. Can't Nathan pinch hit for him?
lightreader 12/5/2012 | 12:07:45 AM
re: Redback Exec Part of Criminal Probe who DARN cares??
BobbyMax 12/5/2012 | 12:07:41 AM
re: Redback Exec Part of Criminal Probe The role of Mr. Joel Arnold in cooking revenue data is a very serious misconduct. The problem faced by Arold was to known to Redback at the time he was hired. Providing employment to Arnold is a serious matter. It is hard to guess how Arnold woud have helped Redback.
gea 12/5/2012 | 12:07:40 AM
re: Redback Exec Part of Criminal Probe BobbyMax:

All your base are belong to us.
capolite 12/5/2012 | 12:07:08 AM
re: Redback Exec Part of Criminal Probe There is a bigger story here. Redback was one of Vinod Khosla's stable of startups. Khosla was on the board of Qwest. Qwest bought a very large amount ( large for Redback but maybe not Qwest) of Redback gear. Kevin was the head of Cisco SP sales. Qwest was Cisco's largest SP customer during the height of the boom. Joel Arnold was a leading sales exec at Qwest allegedly responsible for booking some of the $2.2B of questionable results that led Qwest to have a soaring stock price and led Qwest to buy more gear from Redback and Cisco.Those purchases drove Redback and Cisco stock to astronomical heights and led to Kevin being considered a genius and getting the CEO spot at Redback where he hires Joel Arnold. Are these all conicidences? We'll have to wait and see if charges are filed and if the whole sordid mess gets aired out in court. I'm betting on an out of court settlement with the records sealed.
techlurker 12/4/2012 | 11:19:57 PM
re: Redback Exec Part of Criminal Probe You may want to check your facts a bit. Redback merged/acquired Siara. Siara is the company that Vinod was a part of. Qwest had a relationship with Redback prior to that merger.
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