Accounting Fraud Outlives the Company

Five former top tech executives didn't admit — or deny — wrongdoing, but it still cost them well over $1 million in penalties for a scheme to inflate Riverstone Networks' revenues several years ago.

A federal district court judge in San Francisco ordered former chief executive Romulus S. Pereira, to pay $375,000 — plus a $75,000 civil penalty — for his part in approving $30 million in fraudulent sales designed to shore up the bottom line of the communications routers manufacturer.

That's about what he gained in stock sales during the period in question — June 2001 through June 2002, when securities regulators claim that the executives knew or approved of some $30 million in fraudulent sales.

That led to the company to overstate its income by 23 percent in the four quarters, to falsify the company's books and to lie to outside auditors about their book cooking.

Also ordered to disgorge gains were Robert B. Stanton, former chief financial officer, who must pay $175,000 plus a $75,000 civil penalty; L. John Kern, former executive vice president for sales, who must pay $347,066 plus a $40,000 penalty; Andrew D. Feldman, former vice president for marketing, who must pay $289,507, and Lori H. Cornmesser, former director of sales operations, who must pay $17,054.

Interest penalties on their disgorgement amounts also ran up the bill for some of them. In addition, William F. McFarland, former vice president of finance, was ordered to pay a $40,000 penalty.

In addition, Pereira, Stanton and Kern have been barred for five years form serving as an officer or director of a public company. In December 2007, both Kern and Feldman pled guilty to one felony count each of violating internal accounting controls regulations and were each fined $5,000 and sentenced to three years of probation.

Since Riverstone's turmoil, Lucent Technologies acquired most of its assets and employees. Lucent merged with Alcatel of France in 2006.

by Elizabeth Olson