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Optical/IP

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
http://www.lightreading.com
Metadata123 12/4/2012 | 10:50:54 PM
re: Riverstone: Insider Sales Programmed Optiplayer,

Shame on you for calling the toiling engineers whose brains created the product, as sniveling and whining. It is the sweat of these guys that allowed these unscrupulous guys to rocket to unheard of prosperity. And it is a joke if you say that they brought CS back from the abyss! They basically destroyed the company and used it as a mechanism for self-aggrandizement and literally broke it into multiple worthless parts. A couple of those parts donGÇÖt even exist any more. This was nothing but a get-rich quick scheme that is finally coming apart.

Sounds like you are on the payroll of these hustlers! The $50M that RSTN sold this quarter are mainly to some unsuspecting customers in the Far East and not a single self respecting company. You wonder why any company of any repute has bought their gear? In all likelihood, these guys couldnGÇÖt get it past the test lab.

These guys were neither leaders nor technologists. They were some humdrum hustlers who got lucky. This is not to say that the company is made of dumb engineers. It is only the thieving leaders that one should blame.

optiplayer 12/4/2012 | 10:50:55 PM
re: Riverstone: Insider Sales Programmed How exactly did they cheat anyone? RSTN will sell $50M of produst this quarter and come close to break even - damn good in this market. There fault was in not managing expectations on Wall Street so their stock got hammered (much like Cisco, Ciena, LU, NT, INTC, Sun, EMC, etc., etc - are these all bogus companies too).

The guys who started this company started Yago years ago which was bought by Cabletron. They helped manage CS back from the edge of the abyss and executed a split of the company which created RSTN. These guys have put it on the line for years, this was no get rich quick scheme. Their efforts dwarf those of some whining little engineers that are basicly a dime a dozen these days.

Since when is selling to RBOCs a measure of success? LU, NT, ALA, Fuji all sell tons to RBOCs - are they great companies? Do you want to work there?

Typical engineering mentality - "we need good technology". BS - great companies are made by great leaders not great technology or piles of snivelly engineers with phds who think they know better than everyone else but would never put it on the line.
Metadata123 12/4/2012 | 10:50:56 PM
re: Riverstone: Insider Sales Programmed Optiplayer & Cruiser,

You call these guys gutsy and brave. I call them losers who cheated a collection of simpleton engineers and lied their way to Wall Street. And lined their pockets along the way. How can you defend these criminals? The only people who did any hard work were a bunch of engineers who were not part of the privileged few who bailed out in time before the stock plummeted.

Customers have given the final verdict. Except for morons who started Ethernet companies (without a defensible business case), not a single significant US RBOC have trust in their product to do broad-based adoption. These RSTN guys are looking for suckers in the Far East and if their announcements are right, have sold a few boxes to them. I feel sorry for those unsuspecting Asians.

Now all of you apologists for white collar criminals should take a good look at yourselves. We all want smart people to develop good technologies. But you donGÇÖt want hustlers to cheat the investing public and get away with it, do you? Why do you guys have a problem with calling a spade a spade?
steve 12/4/2012 | 10:50:56 PM
re: Riverstone: Insider Sales Programmed Gingerly entering this tawdry fray: We need to introduce a concept that is missing from this discussion: FLOAT. Selling is good because it puts more stock in the hands of the public, where it can be traded, hence reducing stock price volatility. This is called increasing the public float. It has abolutely no effect on "dilution" since the shares are already outstanding whether they are public or privately held. And yes if they are options that have been excercised, they are in the money and hence counted in share calculations by research analysts so revenue or earnings per share are not affected.
cruiser 12/4/2012 | 10:50:59 PM
re: Riverstone: Insider Sales Programmed bravo optiplayer. bravo. you are right. these boards are populated by naysayers and the negativism is rampant. leads me to believe that csco, nt, lu, ala, etc. have assigned people to bash startups and cheer their woes. ok, enough paranoia.

optiplayer 12/4/2012 | 10:51:02 PM
re: Riverstone: Insider Sales Programmed Why don't we make them forfeir their first born if the stock goes down?

What a collection of envious whiners on this board. These guys had the guts and determination to start a company and are reaping the rewards of their hard work and sacrifice. Are they having a difficult quarter, yes but sales are still strong and the company is close to break even.

I guessing many of you joined start-ups that have failed and are now bitter especially when you see start-ups that have rewarded their employees.

Metadata, given that you are so much smarter than the RSTN guys and know that their product is a failure then you should be happy that their stock is in the crapper because you must have loaded up on puts or shorted the stock when it was around 20, right?

Didn't think so... much easier to Monday morning QB.

Whiners.
optical_man 12/4/2012 | 10:51:05 PM
re: Riverstone: Insider Sales Programmed Author: laserbrain Number: 14
Subject: Re: Hello?! Selling is GOOD! Date: 3/4/2002 9:13:36 PM
"More stock in public hands = liquidity. period. Liquidity has nothing to do with the price of the stock.
The CEO is of course, an investor. period. He's invested skill, sweat, time, talent and very often big $$ of his own. Your fallacy is is that because he makes a "$100k salary", is "self involved" and becuase you're worried about him making money while someone else might lose some, he shouldn't be able to sell a property that he owns."

LaserBrain,
Stop staring into the red light. Are you NUTS? How can you say more stock = more liquidity? Have you never studied FINANCE? There comes a point where 'dilution' sets in. (look up that work laserbrain.
Also, name ONE CEO who is an Investor. One, please, and I'll shut up.
They are not investing any sweat.
The original objection I had was to some of these Executive Management types who use 'programmed selling' as an excuse to dump stock until the company is on it's knees.
Witness riverstone, juniper, redback, sonus, sycamore.
If these stocks had some time to mature and stablize their business then they would be able to better handle the onslaught of the Executive sell-off. (and don't try that 'well 50,000 shares is a small portion of their holdings', that only tells me that when they set up the company, they gave out WAY too many shares to people).
Don't get me wrong, I've profited HANDSOMELY from Stock Options (enough to retire and still put the kids through school). So I'm not a socialist, but I am upset with the blatant stock printing presses I'm seeing right now from a lot of these companies.
Just because you were at XXX in 1992-1996 and had as much trouble selling gear to customers as a Vodka distiller has selling his wares to the Russians populace, does NOT mean you should try the same stuff again. It's a recipe for disaster. And personally, I don't want Vendor disaster, I want across the board Vendor success.
Layer7 12/4/2012 | 10:51:06 PM
re: Riverstone: Insider Sales Programmed Enterasys does not resell Riverstone equipment, however the basis for each product is the products that came from Yago systems. Cabletron bought them and they have now been re-spun out as Riverstone, so the basics of the product lines are the same at this point (aside from the very new product introductions).
laserbrain 12/4/2012 | 10:51:06 PM
re: Riverstone: Insider Sales Programmed More stock in public hands = liquidity. period. Liquidity has nothing to do with the price of the stock.

The CEO is of course, an investor. period. He's invested skill, sweat, time, talent and very often big $$ of his own. Your fallacy is is that because he makes a "$100k salary", is "self involved" and becuase you're worried about him making money while someone else might lose some, he shouldn't be able to sell a property that he owns.

We have to protect the little guy from the big, bad market. As long as we can buy & sell stock that could go up OR down, someone is going to get hurt. Why not outlaw private ownership of companies altogether? (Why not outlaw private property while you're at it.) It worked well for the Soviets. Umm, no...North Korea? well, nah...Cuba? hmmm, guess not... Berkeley! What about Berkeley?! There's still hope for socialism!

=-=-=-=-=-=-=-=-=-=
Huh? The CEO is an investor? I understood that he was 'granted' millions of options that he 'sold' right before announcing an earnings warning.
How does this provide liquidity?
If I unload so many shares that my stock plummets, how does this provide liquidity?
I I unload a small number of shares that does not affect the stock price, how does THAT provide liquidity.
We're not talking the investors here, we're talking about the self involved executive staffs (at these companies) whose risk is minimal. Come on, give up 1 1/2 years of your life to possibly hit the jackpot? They still have 100k salaries, so what is their 'risk'? Honestly, what is their risk?
optical_man 12/4/2012 | 10:51:10 PM
re: Riverstone: Insider Sales Programmed "And for those calling for 3-5 year lockouts, remember that these trades provide liquidity and liquidity is a critical factor for investors."

Huh? The CEO is an investor? I understood that he was 'granted' millions of options that he 'sold' right before announcing an earnings warning.
How does this provide liquidity?
If I unload so many shares that my stock plummets, how does this provide liquidity?
I I unload a small number of shares that does not affect the stock price, how does THAT provide liquidity.
We're not talking the investors here, we're talking about the self involved executive staffs (at these companies) whose risk is minimal. Come on, give up 1 1/2 years of your life to possibly hit the jackpot? They still have 100k salaries, so what is their 'risk'? Honestly, what is their risk?
rjmcmahon 12/4/2012 | 10:51:14 PM
re: Riverstone: Insider Sales Programmed It absolutely boggles my mind how many people sit on these boards and bitch and moan about successful entreprenuers taking a little cash off the table.
_____________________

They weren't successful. They took much more than they needed. Their winnings didn't come from earnings.

One wonders what it takes to make great things happen. Asking only the accountants to determine our worth seems to lead to bankruptcy.
laserbrain 12/4/2012 | 10:51:16 PM
re: Riverstone: Insider Sales Programmed What are you guys, a bunch of groveling socialists?

It absolutely boggles my mind how many people sit on these boards and bitch and moan about successful entreprenuers taking a little cash off the table.

These guys built a relatively successful firm and not only have a right but indeed have a personal obligation to sell some of it. Take your million bucks, buy the home in Woodside. You've busted your ass, you deserve it.

Should you trade your company in a 401(k) in your wife's name? Duh, No. Should You pump-and-dump? of course not. Should you file with the SEC and say, "I'm selling stock every month this year, given the following conditions..."? Abso-f***in'-lutely

I frankly find those megalomaniacal execs who never sell a share of their companies just a little bit creepy.

And for those calling for 3-5 year lockouts, remember that these trades provide liquidity and liquidity is a critical factor for investors.

Obviously, as an investor you need to take this information into account. If you don't like the potential volitility of tech stocks, don't invest. As executives, they need to understand the market implications of their actions. Now that we're all clear, proceed as planned.
dietaryfiber 12/4/2012 | 10:51:19 PM
re: Riverstone: Insider Sales Programmed nobollox,

I think that would prevent VCs from investing in these types of firms. They want to have the freedom to get their money out and at least those with Board seats would be considered insiders. I hate to point this out, but many (if not all)employees during the private phase of the firm would be considered insiders as well.

dietary fiber
nobollox 12/4/2012 | 10:51:20 PM
re: Riverstone: Insider Sales Programmed The idea of creating a 3-5 year lockout for insider trading is okay, but what about the investor community locking out any private companies from going public without 3-5 years of good solid financials and operations. Maybe that would do the trick.

NB
Metadata123 12/4/2012 | 10:51:21 PM
re: Riverstone: Insider Sales Programmed Opticaluser,

You are completely incorrect. Enterasys does not resell Riverstone equipment to anyone; and definitely not the Enterprise market. Check your facts before you spout nonsense.

Riverstone is spiraling into oblivion as its vision of a world full of edge routing gear supporting IP/MPLS is coming crashing down as none of the US carriers are willing to put any money down towards that vision. All they have is a bunch of suckers from Asia who really don't understand what they got into.

There will always be a market for edge routing. But nothing that would justify a company with a multi million dollar market cap. And by the time the US carriers even come around, everyone else would have all these features and edge IP/MPLS gear would be a commodity.

However, this article was about the small time crooks running the company and how they are conning the investing public and their own employees and cashing out when they knew the company was headed for a mammoth fall. Even with the fig leaf of a sell program, this is a wholesome mixture of unbridled avarice and outright theft. And all this, after they have managed to drive the company into the ground with a pointless strategy.
StartUpGuy1 12/4/2012 | 10:51:23 PM
re: Riverstone: Insider Sales Programmed If you would look at this company and where it came from, you would see that Entrasys DOES sell the Riverstone product to the Enterprise market. This was part of the deal when Cabletron spun off the RIverstone and Entrasys units. Entrasys was Cabletrons Enterprise sales/support unit.

Focus is what will get companies through this time. Riverstone does sell there products to Enterprise through Entrasys, but they are not focused on delivering products tailored for the Enterprise. If they did, their products would not be a fit for carriers.

Foundry and Extreme are trying to do both, but look at their numbers and you will see a similar struggle.
dietaryfiber 12/4/2012 | 10:51:36 PM
re: Riverstone: Insider Sales Programmed
Again, one of the things in these plans items like:

Sell 50,000 shares of stock on the 11th of each month as long as the stock is above $10.

That is a valid selling plan. As long as the formula is clear and pre-made you can put conditions on the sale.

dietary fiber
optical_man 12/4/2012 | 10:51:36 PM
re: Riverstone: Insider Sales Programmed dietaryfiber,
agree with you that the 'pre-programmed insider selling programs' are legal. They were set up to say 'we are not gouging the company. However, look at some examples: in May 2001 the Sonus Executives went on Pre-programmed selling and told the analysts that this would 'stabilize the stock'. Ok, sound reasonable? Well, they preprogrammed to sell 50,000 shares/month EACH. Then, when the stock tanked in the fall, they QUIT selling. I think to be fair, they should have had to keep selling their shares at $2.00 to show they weren't gouging and were only selling 'pre-programmed' shares. They get it both ways. Is this all legal? Yes. Is it right? If it's legal, then it's right. Should IPO companies have lock-outs of 3-5 years? YOU BET.
Will the 'pre-programmed' sellling of Riverstone stop until the stock goes back up? YES, you watch it stop, and they'll say they didn't want to 'hurt the stock' by selling more....FALSE, they get it both ways.
These are my thoughts only and subject to Congressional oversight if needed!
dietaryfiber 12/4/2012 | 10:51:37 PM
re: Riverstone: Insider Sales Programmed
I hate to disappoint you all, but selling plans are a way of dealing with these insider trading potentials. When Reg FD was introduced, they also tightened up insider trading regulations. To compensate, they allowed people to file plans to allow them to sell stock for a defined period of time (typically one year). This plan is executed and the formula for selling can be simple, complicated, anything as long as its predefined. Basically, if one of these plans is in place then they are pretty much protected from insider trading charges.

dietary fiber
optical_man 12/4/2012 | 10:51:38 PM
re: Riverstone: Insider Sales Programmed I explained this on the other board but here it is again:
What happened in Jan was the ESPP purchase/sale by Riverstone employees.
What you saw was the top Execs report their sales. Guess what? EVERY single other employee did the same sale but wasn't required by the SEC to report it. Legal? Yes. Ethical, maybe.
Happen at GE? Yes.
Heres the difference; at GE the employees get stock purchase rights every 1/2 year or so and get the stock at a discount. Difference is that GE's stock is stablized so a sale by the GE employees doesn't amount to much. HOWEVER a YOUNG company like RSTN doesn't yet have a stable stock, so a mass dump by the employee base sends shock waves through the investor community, let alone you and me.
Should these things be outlawed? Yes and No. They should be banned for 3-5 years after an IPO so the young companies stock can stabilize and prove a track record.
That'll fix this issue.
Metadata123 12/4/2012 | 10:51:38 PM
re: Riverstone: Insider Sales Programmed Even after I left this message on Feb 6, the insiders at RSTN, have been bailing out. http://www.lightreading.com/bo...

Now we know that RSTN is coming up with convoluted justifications for the criminal acts of their most senior five executives. With Metro Ethernet on its last legs in the US (the RBOCs having abandoned even any pretense of wanting to deliver them any time soon), these individuals had access to information that very few others did.

They can also be faulted for bad market strategy. Without an Enterprise offering, RSTN has no fall back position unlike Cisco, Extreme, or Foundry. Most industry watchers knew this, but got too carried away with the ubiquitous broadband hype.

Regardless of the lengthy (but terribly weak) explanation that RSTN had to offer to justify the acts of these insiders, it is apparent to all that sales had dipped in January and these guys knew it. If there is clear evidence that any of these five clowns talked up RSTN during the month of January to either analysts or employees, then they need to be indicted. How different is this gang from the Lay-Skilling-Fastow crowd at Enron. Not much in their venality, albeit these guys at RSTN were small time crooks while the Enron guys were really in the big leagues.
ritefiber 12/4/2012 | 10:51:39 PM
re: Riverstone: Insider Sales Programmed Too much of a coincidence that 4 execs happen to sell at the same time. While they say the share volumes are small, the question is how many more times they will sell?

A sign of troubled times ahead...
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