Securities and Exchange Commission v. Romulus S. Pereira Et Al.

LESLIE J. HUGHES (CO Bar No. 15043) 
hughesli@sec. aov 
LEE C. ROBINSON (CO Bar No. 32734) 
[email protected] 
Attorneys for Plaintiff 
U.S. Securities and Exchange Commission 
1801 California Street, Suite 1500 
Denver, Colorado 80202-2656 
Telephone: (3 03) 844- 1000 
Fax: (303) 844-1068 
UNITED STATES DISTRICT COURT 
NORTHERN DISTRICT OF CALIFORNIA 
SAN JOSE DIVISION 
SECURITIES AND EXCHANGE 
Case No. 
COMMISSION, 
Plaintiff, 
v. 
COMPLAINT 
ROMULUS S. PEREIRA, 
ROBERT B. STANTON, 
L. JOHN KERN, 
ANDREW D. FELDMAN, 
WILLIAM F.  McFARLAND, 
LORI H. CORNMESSER, 
Defendants. 
Plaintiff, Securities and Exchange Commission ("SEC") alleges: 
I. SUMMARY 
1. From June 2001 through June 2002 (the "relevant period''), Romulus S. Pereira, 
chief executive officer, Robert 
B. Stanton, chief financial officer, L. John Kern, executive vice 
president of worldwide sales, Andrew 
D. Feldman, vice president of marketing, and William R 
McFarland, vice president of finance, engaged in a scheme that defi-auded investors by making 
COMPLAINT 

materially false and misleading statements regarding the net revenues of Riverstone Networks, 
Inc. ("Riverstone"), a public company whose securities were traded on the NASDAQ national 
market. 
2. During the relevant period, Pereira, Stanton, Kern, Feldman, and McFarland 
negotiated, reviewed, approved, or were otherwise aware of sales transactions that involved side 
agreements with purchasers, under which the customer's payment for Riverstone product was 
contingent upon resale or the purchaser was granted full return, exchange, or cancellation rights 
and for which Riverstone improperly recognized revenues under Generally Accepted Accounting 
Principles 
("GAAP"). 
3. As a direct result of these Defendants' actions, Riverstone falsely reported at  least 
$29,613,000 of revenues in its financial statements as a result of the contingent sales, causing 
revenue overstatements for each of the four quarters in the relevant period ranging between 
14.31 
% and 23.14 %. 
4. Pereira, Stanton, Kern, Feldman, and McFarland knew, or were reckless in not 
knowing, that it  was improper for Riverstone to recognize revenues on these contingent sales 
under 
GAAP and that Riverstone's periodic filings with the SEC during the relevant period 
contained materially false and misleading information regarding its reported revenues. 
5. Pereira, Stanton, and McFarland, who were responsible for Riverstone's 
accounting department and policies, also failed to devise, implement, and maintain an adequate 
system of internal accounting controls at Riverstone. 
6. 
Pereira, Stanton, Kern, Feldman, and McFarland, aided and abetted by 
Riverstone's director of sales operations, Lori 
H. Cornmesser, made or caused misstatements 
and omissions to Riverstone's accountants concerning the true nature of certain sales 
transactions. 
7. 
During the relevant period, each of the Defendants circumvented the internal 
accounting controls that Riverstone had in place and falsified Riverstone's books, records, and 
accounts. 
8. While Riverstone's stock price was artificially inflated due to its material 
COMPLAINT 

overstatement of revenues, each of the Defendants except McFarland realized substantial profits 
fi-om stock sales, bonuses, and other forms of compensation. 
9. 
Riverstone was a majority-owned subsidiary of Enterasys Networks, Inc., 
formerly known as Cabletron Systems Inc., (referred to jointly as "Enterasys"), until it was spun 
off as an independent public company on August 6, 2001. Riverstone's financial statements 
prior to August 6,2001, were included in Enterasys's consolidated financial reports. 
10. 
On February 1,2002, Enterasys announced that it was the subject of a formal SEC 
investigation and that it was reviewing its sales and revenue recognition practices for its Asia 
Pacific region and would therefore be delaying the release of its fourth quarter financial results. 
11. 
Just before the announcement on February 1, 2002, Riverstone's stock had a 
closing price of $15.72 per share. Within two weeks after Enterasys's announcement, 
Riverstone's stock was trading at $7.70 per share, a decline of over 50 percent. This represents a 
change in the value of the shareholders' stock of approximately $984 million. 
12. 
On August 27,2003, Riverstone filed an amended current report with the SEC on 
Form 8-K, which 
Stanton signed, announcing the company had overstated its revenues for fiscal 
year 2002 by as much as $85.5 million and for the nine months ended November 30,2002, by as 
much as $12.7 million. 
11. JURISDICTION AND VENUE 
13. 
The SEC brings this action to enforce the federal securities law pursuant to 
Sections 21(d) and 21(e) of the Securities Exchange Act of 1934 ("Exchange Act") 115 U.S.C. 
§ 
78u(d) and 78u(e)]. 
14. 
This Court has jurisdiction over this action pursuant to Sections 21(e) and 27 of 
the Exchange Act 115 U.S.C. 
$8 78u(e) and 78aal. 
15. The Defendants, directly or indirectly, have made use of the means or 
instrumentalities of interstate commerce, or of the mails in connection with the transactions, acts, 
practices, and courses of business described in this Complaint. 
16. 
This district is appropriate for venue under Section 27 of the Exchange Act [15 
U.S.C. 
5 78aal. Certain of the transactions, acts, practices, and courses of business constituting 
3 
COMPLAINT 

the violations of law alleged in this Complaint occurred within the Northern District of 
California. The Defendants worked in Riverstone's principle office 
in Santa Clara, California. 
The Defendants also reside within this district in Santa Clara or San Mateo counties. 
111. INTRA-DISTRICT ASSIGNMENT 
17. Assignment to the San Jose Division is appropriate pursuant to Civil Local Rule 
3-2(e) because a substantial part of the events that give rise to the Commission's claims occurred 
in Santa Clara County. 
Iv. DEFENDANTS 
18. Romulus S. Pereira, age 55, a resident of Saratoga, California, served as chief 
executive officer, president, and as a  director of Riverstone fiom March 2000 until December 
2003. During the period March 4, 2001 to October 3 1, 2001, Pereira was also the executive at 
Riverstone in charge of worldwide sales. 
19. Robert 
B. Stanton, age 54, a  resident of Palo Alto, California, served as 
Riverstone's chief financial officer and executive vice president of finance fiom August 2000 
until October 2003. 
20. 
L. John Kern, age 39, a  resident of Hillsborough, California, served as 
Riverstone's executive vice president of worldwide sales fiom November 2001 until October 
2002. Kern was Riverstone's vice president of sales from January 2001 to November 2001 and 
its vice president of worldwide sales operations from April 2000 to January 2001. 
21. Andrew D. Feldman, age 36, a resident of Portola Valley, California, served as 
Riverstone's vice president of marketing eom March 2000 until July 2003. 
22. 
William 
E McFarland, age 54, a  resident of Campbell, California, served as 
Riverstone's vice president of finance fiom August 2001 until June 2003. McFarland was in 
charge of Riverstone's accounting function, including its financial reporting. 
23. Lori 
H. Cornmesser, age 35, a  resident of San Jose, California, served as 
Riverstone's director of sales operations from November 2001 to October 2002, and as senior 
manager of sales operations fiom December 2000 to October 2001. 
COMPLAINT 

V. RELATED ENTITY  
24. Riverstone Networks. Inc. is a Delaware corporation with its principal ofice in 
Santa Clara, California. During the relevant period, Riverstone's stock was registered with the 
SEC pursuant to Section 12(g) of the Exchange Act [15 U.S.C. 
8 781(g)]. 
25. Riverstone designed and sold routers, which are devices for making or 
transferring connections between communication circuits carrying voice or data transmissions. 
VI. 
PEREIRA, STANTON, KERN, FELDMAN, AND MCFARLAND CAUSED 
RIVERSTONE TO REPORT IMPROPER REVENUES FROM CONTINGENT SALES 
26. Riverstone and its directors, officers, and employees were required to comply 
with the federal securities laws and regulations. Those laws and regulations were designed to 
ensure that the financial information of publicly traded companies, such as Riverstone, is 
accurately recorded and disclosed to the investing public. 
27. 
Under the federal securities laws and regulations, Riverstone was required, among 
other things: a) to make and keep books, records, and accounts that accurately and fairly 
reflected the company's business transactions; 
(b) to devise and maintain a  system of internal 
accounting controls that provided reasonable assurances that the company's financial 
transactions were recorded in a manner that would permit the preparation of financial statements 
in conformity with GAAP; and (c) to file with the SEC quarterly reports (known as Forms 10-Q) 
and annual reports (known as Forms 10-K) that included accurate and reliable financial 
statements prepared in accordance with GAAP. 
28. 
As a  public company, Riverstone was also required to retain accountants to 
review and audit its financial statements for compliance with GAAP. Officers and directors of 
public companies are required to provide accountants with information that is not false or 
misleading. 
29. 
Between June 1, 2001, and June 2, 2002, Defendants 
Pereira, Stanton, Kern, 
Feldman, 
and McFarland caused Riverstone to improperly recognize at least $29,613,000 in 
revenues from sales transactions involving rights of return, exchange, and cancellation, and other 
material contingencies such as extended payment terms, which were not accounted for at the 
5 
COMPLAINT 

time the transactions were originally recorded. As a result, revenues related to these sales either 
should not have been recognized or should have been recognized in a different period. 
30. 
Instead of including the foregoing contingencies in its sales contracts or the 
customers' purchase orders, Riverstone agreed to these contingencies in side agreements that, 
due to the acts or omissions of the Defendants, were not recorded in Riverstone's books, records, 
and accounts, or disclosed to the company's outside accountants. 
31. 
The contingent sales were often consummated within the last two weeks of a 
reporting period when Riverstone was struggling to meet its revenues target. 
32. 
Pereira, Stanton, Kern, Feldman, and McFarland knowingly, or recklessly, 
participated in Riverstone's material misstatements of revenues by negotiating, reviewing, or 
recording revenues on contingent sales and concealing the sales contingencies fiom Riverstone's 
outside accountants. 
33. 
Pereira, Stanton, and McFarland also knowingly, 
or recklessly, participated in 
Riverstone's material misstatements of revenues by failing to implement procedures to identify 
and properly account for contingent sales after gaining knowledge that millions of dollars of 
contingent sales had occurred at Riverstone. 
34. As a direct result of these Defendants' actions and omissions, Riverstone 
materially overstated its revenues for each quarter during the relevant period by at least: 
$10,382,000 or 23.1% for the quarter ended September 1, 2001; $7,519,000 or 14.3% for the 
quarter ended December 1, 2001; $7,658,000 or 17.55% for the quarter ended March 2, 2002; 
and $4,054,000 or 15.56% for the quarter ended June 1,2002. 
35. Pereira, Stanton, Kern, Feldman, and McFarland caused Riverstone to file 
three quarterly reports and one annual report with the SEC that contained false and misleading 
financial statements, which were not prepared in accordance with 
GAAP. 
36. 
These Defendants' violations resulted in various materially false statements 
contained 
in SEC filings and other documents, including: Riverstone's annual report on Form 10- 
K for the fiscal year fiom March 4, 2001 to March 2, 2002; Riverstone's quarterly reports on 
Forms 10-Q for the quarters fiom June 3, 2001 to September 1,  2001; September 2, 2001 to 
6 
COMPLAINT 

IDecember 1, 2001; and March 3, 2002 to June 1, 2002; all press releases and other statements 
incorporating the above documents; and the representation letters sent to Riverstone's outside 
accountants on September 20,2001, May 28,2002, and May 30,2002. 
37. 
Pereira and Stanton signed each of the Forms 10-Q and 10-K listed above 
I 
Idespite their knowledge that, or reckless indifference as to whether, the amount of revenues listed 
in each report was false and materially overstated. 
I 
A. 
The World Wide Technolow Side Agreement 
38. 
In August 2001, Feldman approached World Wide Technology, Inc. ("WWT"), a 
Missouri-based reseller, about placing a $2.8 million purchase order with Riverstone. 
39. 
To induce the sale, 
Feldman agreed via e-mail that WWT would not have to pay 
for the Riverstone product until it  was resold ("sell-through payment term") and that WWT 
would have fbll exchange rights on the order. 
40. 
Feldman informed both Pereira and Stanton about the sell-through payment 
term prior to agreeing to it  and 
Pereira specifically approved the term and instructed Feldman 
to close the WWT transaction. 
41. On August 28, 2001, four days before the close of Riverstone's second quarter, 
WWT submitted a  $2.8 million purchase order to Riverstone that made reference to the sale 
contingencies contained in 
Feldman's e-mail. Feldman told WWT that he could provide a side 
agreement with the contingencies, but instructed WWT to remove the note referencing them 
fiom the purchase order. 
42. At the time 
Feldman entered into the side agreement with WWT, he was aware 
that Riverstone intended to recognize revenues on the WWT transaction, that the sale 
contingencies would prevent revenue recognition under 
GAAP, and that WWT's purchase order 
needed to omit any references to the contingencies if revenue was to be recognized. 
43. 
h response to Feldman's request, WWT sent a revised purchase order to 
Riverstone deleting the note. 
44. Despite the known contingencies, 
Pereira, Stanton, and Feldman caused 
1 COMPLAINT 

Ifrom the WWT sale. 
45. A month after the WWT sale, Riverstone's director of credit and collections, 
.I
1 
Kathy Alvendia, learned of the sell-through payment term as a  result of a  collection call to 
IWWT. Alvendia informed Stanton, Feldman, and McFarland on October 2, 2001, that the 
i Iinability to collect the amount owed by WWT at the time would have a major impact on the 
aging of Riverstone's receivables. 
46. On October 11, 2001, Alvendia met with Feldman and McFarland, at which 
time Feldman confirmed the existence of the sell-through payment term. 
47. 
The next day, Alvendia sent an e-mail to Pereira, Stanton, Kern, Feldman, and 
11
IMcFarland stating that Riverstone gave WWT a sell-through payment term "as part of shipping 
! 
$3M in revenue for the qtr." 
I 
48. 
Soon after Pereira and Stanton were told by Alvendia of the sell-through 
payment term given to WWT, they both had conversations with her in which they acknowledged 
that the WWT transaction was a problem. 
1 
49. Three days later, on October 15, 2001, Pereira and Stantoo signed Riverstone's 
i 
7 Form 10-Q for the quarter ending September 1, 2001, which included all the revenues recorded 
I 
5 Ifiom the WWT transaction. 
50. 
Pereira, Stanton, and McFarland took no action to reverse the improper 
)Irevenues fiom the WWT transaction, which alone comprised 5.1% of Riverstone's reported 
revenues for the quarter. 
51. 
Absent the WWT sale, Riverstone would not have met its Wall Street revenues 
) 
I
expectations for the second quarter of fiscal year 2002, nor would it have posted a profit. 
11 
52. On September 20,2001, in connection with the quarterly review by Riverstone's 
5 
I
outside accountant, KPMG LLP, Pereira, Stanton, and McFarland signed a  representation 
5 
I
letter indicating that, among other things, all of Riverstone's sales transactions were final, there 
7 
I
existed no side agreements involving return rights, and that revenues were reserved to the extent 
% Isignificant fuhue obligations exist. 
1 COMPLAINT 

53. 
On May 28,2002, Pereira, Stanton, and McFarland also signed a representation 
letter to Riverstone's outside accountant, Ernst 
& Young LLP ("E&Y"), in connection with the 
year-end audit for the fiscal year ending March 2, 2002, stating that none of Riverstone's 
resellers had sell-through payment terms. 
54. On May 30, 2002, Pereira signed a separate representation letter to E&Y stating 
that he had no knowledge of any side agreements for the period March 4, 2001, to October 3 1, 
2001. 
55. 
Based on Pereira, Stanton, and McFarland's knowledge of the sell-through 
payment term connected with the WWT sale, their representations and omissions to Riverstone's 
outside accountants were false and misleading. 
56. Feldman's procurement of the revised purchase order fiom WWT concealed the 
sale contingencies fiom Riverstone's outside accountants. It  also caused Riverstone's books, 
records, and accounts to be false. 
B. The Vnetek Side Agreement 
57. Riverstone personnel asked customers to remove non-standard terms fiom 
purchase orders and instead provide "clean" purchase orders (a purchase order with Riverstone's 
standard sales terms) and Riverstone personnel, in turn, committed to the non-standard terms 
in a 
side letter or verbal agreement. 
> 
58. 
Feldman and Kern were aware of this practice of getting a  "clean" purchase 
1 
order, which was needed to "get through audit." 
1 
59. 
On November 29, 2001, three days before the end of Riverstone's third quarter, 
Vnetek Communications, Inc. ("Vnetek"), a  New Hampshire-based reseller, sent Feldman a 
"clean" $2.0 million purchase order reflecting net 30 payment terms. 
60. However, to induce the sale, Feldman signed a  side agreement with Vnetek 
giving it full return rights and a sell-through payment term for the order. 
'I 
61. 
At the time he granted Vnetek the full return rights and a  sell-through payment 
7 
term, Feldman knew these terms prohibited revenue recognition under GAAP. 
3 

62. 
The sale contingencies granted to Vnetek by Feldman were approved by Pereira, 
Stanton, and McFarland. 
63. 
Despite the known contingencies, Pereira, Stanton, Feldman, and McFarland 
zaused Riverstone to recognize $1.5 million of revenues for the third quarter that ended 
December 1,2001, from the Vnetek sale. 
64. 
Feldman's procurement of the "clean" purchase order from Vnetek and use of a 
side agreement concealed the sale contingencies from Riverstone's outside accountants. It  also 
caused Riverstone's books, records, and accounts to be false. 
C. The Technica Side Agreement 
65. 
In early 2002, Riverstone was negotiating an opportunity for a  large sale to the 
Defense Information Systems Agency ("DISA"), a branch of the United States Department of 
Defense. 
66. Riverstone used resellers to "pull deals forward," meaning to take product in 
advance of a sale to an end user so that Riverstone could recognize revenues in an earlier quarter 
for the purpose of meeting Wall Street expectations. This practice was known to Kern, 
Feldman, and McFarland. 
67. Because the DISA sale could not be consummated by the quarter ending March 2, 
2002, Riverstone's sales personnel approached Technica Corporation ("Technica"), a Virginia- 
based reseller, about purchasing the DISA inventory before March 2, 2002, with the 
understanding that Technica did not have to pay for the inventory until it was resold to DISA. 
68. 
To induce the sale, Kern approved a  side agreement granting Technica a  sell- 
through payment term and unlimited stock rotation rights for the order. 
69. 
On February 19, 2002, Technica placed a  "clean" $2.0 million purchase order 
with Riverstone that did not reference the sales contingencies. 
70. 
At the time he approved the Technica side agreement, Kern knew it was improper 
to  recognize revenues on the transaction under 
GAAP and that Riverstone intended to include the 
Technica deal in its revenues for the quarter. 
COMPLAINT 

71. 
On May 1,2002, a month before Riverstone filed its Form 10-K for the fiscal year 
ending March 2, 2002, 
Cornmesser received an e-mail fiom the Riverstone sales person on the 
Technica account informing her of the side agreement and the sell-through payment term, which 
she forwarded to 
McFarland. 
72. 
McFarland took no action on Cornmesser's e-mail, and did not request a copy 
of the side agreement. 
73. 
McFarland did not bring the Technica side agreement to the attention of 
Riverstone's outside accountants. 
74. 
Notwithstanding their knowledge of the contingency, 
Kern and McFarland 
caused Riverstone improperly to record $2.0 million of revenues in the quarter ending March 2, 
2002, on the Technica transaction. 
75. Just days after 
McFarland was informed of the Technica side agreement, 
Riverstone's sales personnel approached Technica to take additional product for the DISA deal. 
76. 
On May 23, 2002, in the last week of the quarter ending June 1, 2002, 
Kern 
approved a second side agreement granting Technica a sell-through payment term and unlimited 
stock rotation rights with respect to an additional $2.8 million purchase order. 
77. 
Kern caused Riverstone to recognize $2.8 million of revenues on the second 
Technica transaction for the quarter ending June 1, 2002, despite the existence of the side 
agreement. This transaction with Technica comprised 9.4% of Riverstone's revenues for the 
quarter. 
78. 
On May 30, 2002, within days after the execution of the second Technica side 
agreement, 
Kern signed a false representation letter to E&Y stating that he had no knowledge of 
any side agreements with Riverstone's customers. 
79. 
Shortly after being informed that Technica had been given a sell-through payment 
term for its initial $2.0 million purchase order, 
McFarland signed a false representation letter on 
May 28,2002, to 
E&Y stating that Riverstone had not agreed to sell-through payment terms with 
its resellers. 

80. 
Kern, McFarland, and Cornmesser caused Riverstone's books, records, and 
accounts to be false by failing to record the side agreements with Technica or by recording 
revenues without appropriate reserves on contingent sales. 
D. 
The TM Telecom Side Agreement 
8 1. 
In 2002, Riverstone was working on a potential investment transaction involving 
Ia Brazilian end-user called Intelig Telecom ("Intelig"). The parties contemplated that Riverstone 
Iwould invest approximately $1.0 million in Intelig in return for Intelig's commitment to purchase 
Riverstone product in the amount of Riverstone's investment. 
I 
82. 
Because the Intelig investment deal could not be completed in the quarter ending 
I 
June 1, 2002, Riverstone sales personnel engaged in discussions with Florida-based reseller TM 
Telecom, Inc. ("TM Telecorn") about submitting a $1.0 million purchase order prior to the end 
I 
:I 
of the quarter to purchase the product Riverstone intended to sell to Intelig, i.e., to pull the deal 
forward. 
83. 
To induce the sale, Kern approved granting TM Telecom a sell-through payment 
term for the order, which was conveyed to TM Telecom verbally by a Riverstone sales manager. 
I  
84. On May 24, 2002, 
in the last week of the quarter, TM Telecom submitted the 
purchase order to Riverstone for approximately $1.0 million of product. 
i 
I 
85. However, TM Telecom had no need for the Riverstone product and did not have 
1 
the independent ability to pay for it. 
1 
I 
86. 
The investment deal with Intelig was not completed by June 1,2002. 
I 
87. 
At the time that the side agreement with 
'I'M Telecom was reached, Kern knew 
that the sale contingency would prohibit revenue recognition under 
GAAP, that Riverstone 
intended to recognize revenues on the TM Telecom deal, and that such contingencies were being 
concealed by omitting references to them in the sales documentation. 
88. 
Despite the contingent payment term, Kern caused Riverstone to recognize 
revenues of $1.0 million on the TM Telecom sale for the quarter ending 
June 1,2002. 
COMPLAINT 

89. 
The investment deal with Intelig was never consummated and TM Telecom 
yeturned all of the Riverstone product nine months later. 
90. 
Kern caused Riverstone's books, records, and accounts to be false by failing to 
record the side agreement with TM Telecom. 
E. 
Additional Contingent Sales Improperlv Recorded As Revenues 
91. 
In addition to the foregoing transactions, Stanton, Kern, and McFarland 
approved or had knowledge of the following additional contingent sales for which Riverstone 
improperly recognized revenues contrary to 
GAAP: 
a) Everbright,  $1.0 million improper revenues during the quarter that ended 
September 1,2001, involving Kern; 
b) Keytron S.A., $1.4 million total improper revenues during the quarters that ended 
September 1,2001, and December 2,2001, involving Kern; 
c) REON Broadband, $200,000 improper revenues during the quarter that ended 
September 1,200 1, involving Kern; 
d) Smartnet Technology, Inc., $500,000 improper revenues during the quarter that 
ended September 1,2001, involving Kern; 
e) ZTE Corporation, $1.4 million improper revenues during the quarter that ended 
September 1,200 1, involving Kern; 
f) Spacnet, $700,000 improper revenues during the quarter that ended December 1, 
200 1, involving Kern and McFarland; 
g) Landata Payama, 
S.A., $2.1 million total improper revenues during the quarters 
that ended December 1,200 1, and March 2,2002, involving Kern; 
h) All Networks, $900,000 improper revenues during the quarter that ended 
December 1,2001, involving Stanton, Kern, and McFarland; 
i) Cornmverge, $2.1 million improper revenues during the quarter that ended March 
2,2002, involving Kern; 
COMPLAINT  

j) Vodatel, $2.6 million improper revenues during the quarter that ended March 2, 
2002, involving Kern; 
k) KDC Corp., $1.5 million improper revenues during June 1,2002, involving Kern 
and McFarland; 
1) Solunet, Inc., $5 million improper revenue during the quarters that ended 
September 1,200 1, December 1,200 1, and March 2,2002, involving Kern; and 
m) Trispec, $1.0 million improper revenues during the quarter that ended September 
1,2001, December 1,2001, March 2,2002, involving Kern. 
VII. RIVERSTONE'S SYSTEM OF INTERNAL ACCOUNTING CONTROLS WAS  
INADEQUATE AND EACH OF THE DEFENDANTS CONTRIBUTED TO  
RIVERSTONE'S IMPROPER RECORDKEEPING AND CONCEALED  
INFORMATION FROM RIVERSTONE'S OUTSIDE ACCOUNTANTS  
92. 
Riverstone did not devise or maintain a system of internal accounting controls that 
allowed it to prepare financial statement in conformity with 
GAAP. 
93. 
In some instances, non-standard sales terms, including sell-through payment 
terms, were not communicated fiom the sales group to members of the finance department. This 
problem was specifically brought to the attention of Stanton, Kern, and McFarland, but they 
never instituted a  formal policy to ensure that all non-standard sales terms were properly 
documented and communicated to the finance department. 
94. Pereira, Stanton, and McFarland did not perform any investigation and failed to 
correct Riverstone's books, records, and accounts when sales contingencies were brought to their 
attention. 
95. 
Kern, Feldman, and Cornmesser encouraged others to remove or misstate non- 
standard sales terms on purchase orders, resulting in inaccurate and incomplete sales records. 
96. 
Cornmesser failed to keep complete customer files or preserve their integrity, 
removed side agreements fiom customer files at the direction of Kern, entered false information 
into Riverstone's order management system, and circumvented Riverstone's credit approval 
process. 
COMPLAINT 

97. 
Pereira, Stanton, and McFarland knew, or were reckless in not knowing, that 
nternal control weaknesses existed at Riverstone, and they failed to take adequate steps to 
.ectify them. 
98. 
Each of the Defendants, in a collaborative effort to conceal sales contingencies or 
~ther revenue obstacles from Riverstone's outside accountants, was responsible for the 
ralsification of Riverstone's accounting records or knowingly circumvented the accounting 
~oliciesthat Riverstone had implemented. 
VIII. DEFENDANTS RECEIVED ILL-GOTTEN GAINS  
AS A RESULT OF THEIR CONDUCT  
99. 
Between June 
1, 2001, and June 1, 2002, while the Defendants knowingly or 
eecklessly caused Riverstone to falsely overstate revenues in financial statements that were 
-eported to the SEC and investors, or falsified Riverstone's accounting records, each of the 
Defendants, except McFarland, sold Riverstone stock at artificially inflated prices or received 
additional compensation as a result of their illegal conduct. 
100. The Defendants received at least the following estimated amounts of 
:ompensation and other financial gains: 
a) During the relevant period, Pereira received at least $1,236,712 in gains from 
stock sales. 
b) During the relevant period, Stanton received at least $533,273 in gains from stock 
sales. 
c) During the relevant period, Kern received at  least $503,410 in gains from stock 
sales, and $1 54,324 in sales commissions. 
d) During the relevant period, Feldman received at least $998,499 in gains from 
stock sales, and $3,808 in bonuses. 
e) During the relevant period, Cornmesser at  least received $57,726 in gains from 
stock sales, and $4,000 in bonuses. 
COMPLAINT  

FIRST CLAIM FOR RELIEF  
Fraud 
-Violations of Exchange Act Section 10(b) and Rule 10b-5  
[15 U.S.C. 5 78j(b).and 17 C.F.R 5 240.10b-51  
(Against Defendants Pereira, Stanton, Kern, Feldman, and McFarland)  
101. The SEC realleges paragraphs 1 through 100 above. 
102. 
Based on the conduct alleged above, Pereira, Stanton, Kern, Feldman, and 
McFarland, directly or indirectly, with scienter, in connection with the purchase or sale of 
securities, by the use of means or instrumentalities of interstate commerce, the mails, or any 
facility of a  national securities exchange, employed devices, schemes, or artifices to defkaud; 
made untrue statements of material fact or omitted to state material facts necessary in order to 
make the statements made, in light of the circumstances under which they were made, not 
misleading; or engaged in acts, practices, or courses of business which operated or would operate 
as a fkaud or deceit upon any person; in violation of Section lo@) of the Exchange Act and Rule 
lob-5. [15 U.S.C. $78j(b) and 17 C.F.R. 
8 240.10b-51 
103. Pereira, Stanton, Kern, Feldman, and McFarland violated, and unless 
restrained and enjoined will in the future violate, Section lo@) of the Exchange Act and Rule 
1 Ob-5. 
104. Based on the conduct alleged above, Riverstone violated Section 100) of the 
Exchange Act and Rule lob-5. 
105. 
Alternatively, based on the conduct alleged above, Kern and Feldman knowingly 
provided substantial assistance to Riverstone in its violations of Section lo@) of the Exchange 
Act and Rule lob-5, and therefore each is liable as an aider and abettor pursuant to Section 20(e) 
of  the Exchange Act [15 U.S.C. 78t(e)]. 
106. Kern and Feldman aided and abetted, and unless restrained and enjoined will 
continue to aid and abet, violations of Section lo@) of the Exchange Act and Rule lob-5 [15 
U.S.C. 
8 78j(b) and 17 C.ER. 8 240.10b-51. 

SECOND CLAIM FOR RELIEF 
False SEC Filings 
-Exchange Act Section 13(a) and Exchange Act 
Rules 12b-20,13a-1, and 13a-13 
[I5 U.S.C. 
5 78m(a) and 17 C.F.R $9 240.12b-20, 
240.13a-1, and 240.13a-131 
(Against Defendants Pereira, Stanton, Kern, Feldman, and McFarland) 
107. The SEC realleges paragraphs 1 through 100 above. 
108. Riverstone filed with the SEC three quarterly reports on Forms 10-Q and one 
annual report on Form 10-K that contained materially false and misleading information in 
violation of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. 115 U.S.C. 
5 78m(a) and 17 C.F.R. 55 240.12b-20,240.13a-1 and 240.13a-131. 
109. 
Based on the conduct alleged above, Pereira, Stanton, Kern, Feldman, and 
McFarland knowingly provided substantial assistance to Riverstone 
in its violations of Section 
13(a) of the Exchange Act and Rules 12b-20, 13a- 1 and 13a- 13, and therefore each is liable as 
an 
aider and abettor pursuant to Section 20(e) of the Exchange Act [15 U.S.C. 4 78t(e)]. 
1 10. 
Pereira, Stanton, Kern, Feldman, and McFarland aided and abetted, and unless 
restrained and enjoined will continue to aid and abet, violations of Section 13(a) of the Exchange 
Act and Rules 12b-20, 13a-1, and 13a-13 115 U.S.C. 
5 78m(a) and 17 C.F.R. $9 240.12b-20, 
240.13a-1 and 240.13a-131. 
THIRD CLAIM FOR RELIEF  
False Books and Records 
-Exchange Act Section 13(b)(5) and Rule 13b2-1  
[15 U.S.C. 
5 78m(b)(5) and 17 C.F.R 5 240.13b2-11  
(Against All Defendants) 
1 1 1. 
The SEC realleges paragraphs 1 through 100 above. 
112. Based on the conduct alleged above, Pereira, Stanton, Kern, Feldman, 
McFarland, and Cornmesser knowingly circumvented Riverstone's system of internal 
accounting controls, knowingly falsified Riverstone's books, records, or accounts, and directly or 
indirectly falsified or caused to be falsified books, records, or accounts described 
in Section 
13@)(2) of the Exchange Act [15 U.S.C. 
5 78m(b)(2)]. 
COMPLAINT 

113. Pereira, Stanton, Kern, Feldman, McFarland, and Cornmesser, violated, and 
: 
I
unless restrained and enjoined will continue to violate, Section 13(b)(5) of the Exchange Act and 
I ( Rule 13b2-1 [15 U.S.C. 8 78m(b)(5) and 17 C.F.R. 8 240.13b2-11. 
. FOURTH CLAIM FOR RELIEF 
False Books and Records 
-Exchange Act Section 13@)(2)(A) 
[15 U.S.C. 
5 78m(b)(2)(A)] 
(Against All Defendants) 
( 
1 14. The SEC realleges paragraphs 1 through 100 above. 
, 
I 
1 15. 
Based on the conduct alleged above, Riverstone violated Section 13(b)(2)(A) of 
I 
the ~xchb~e Act [15 U.S.C. 8 78m(b)(2)(A)] which requires issuers of securities registered 
1 
!I 
pursuant to Section 12 of the Exchange Act [15 U.S.C. $ 7811 to make and keep books, records, 
and accounts which in reasonable detail accurately and fairly reflect its transactions and 
, Idisposition of assets. 
116. Based on the conduct alleged above, Pereira, Stanton, Kern, Feldman, 
I
.I
1 
McFarland, and Cornmesser knowingly provided substantial assistance to Riverstone in its 
.
I
violations of Section 13(b)(2)(A) of the Exchange Act, and therefore each is liable as an aider 
1 
and abettor pursuant to Section 20(e) of the Exchange Act [15 U.S.C. $78t(e)]. 
117. 
Pereira, Stanton, Kern, Feldman, McFarland, and Cornmesser aided and 
II
)I
abetted, and unless restrained and enjoined will continue to aid and abet, violations of Section 
)I
13(b)(2)(A) of the Exchange Act [15 U.S.C. $ 78m(b)(2)(A)]. 
FIFTH CLAIM FOR RELIEF 
False Books and Records 
-Exchange Act Section 13(b)(2)(B)(ii)) 
[ISU.S.C. 5 78m(b)(2)(B)(ii)] 
(Against Defendants Pereira, Stanton, and McFarland) 
1 
1 18. 
The SEC realleges paragraphs 1 through 100 above. 
I 
1 19. Based on the conduct alleged above, Riverstone violated Section 13(b)(2)(B)(ii) 
, 
I
of the Exchange Act [15 U.S.C. 5 78m(b)(2)(B)(ii)], which obligates issuers of securities 
11 registered pursuant to Section 12 of the Exchange Act [15 U.S.C. 8 784 to devise and maintain a 
; system of internal accounting controls sufficient to provide reasonable assure that its transactions I 

are recorded as necessary to permit preparation of financial statements in conformity with GAAP 
or other criteria applicable to the statements. 
1 
120. Based on the conduct alleged above, Pereira, Stanton, and McFarland 
knowingly provided substantial assistance to Riverstone in its violations of Section 
I13@)(2)@)(ii), and therefore each of them liable as an aider and abettor pursuant to Section 
20(e) of the Exchange Act [15 U.S.C. 
8 78t(e)]. 
121. Pereira, Stanton, and McFarland aided and abetted, and unless restrained and 
enjoined will continue to aid and abet, violations of Section 13@)(2)(B)(ii) of the Exchange Act 
I 1 [15 U.S.C. 8 78m(b)(2)@)(ii)]. 
SIXTH CLAIM FOR RELIEF 
Deceit of Accountants 
-Exchange Act Rule 13132-2 
[17 
C.F.R 5 240.13b2-21 
(Against All Defendants) 
;I 
122. The SEC realleges paragraphs 1 through 100 above. 
C 
123. 
By engaging in the acts and conduct alleged above, Pereira, Stanton, Kern, 
IFeldman, and McFarland, who were directors or officers of Riverstone when they engaged in 
1 the alleged acts and conduct, directly or indirectly, knowingly made or caused to be made 
'( materially false or misleading statements, or omitted to state or caused another person to omit to 
Istate, material facts necessary in order to make the statements made, in light of the circumstances 
under which they were made, not misleading to an accountant in connection with an audit or 
examination of the financial statements of Riverstone required to be made or the preparation or 
filing of reports required to be filed by Riverstone with the SEC. 
124. Through the conduct alleged above, Pereira, Stanton, Kern, Feldman, and 
'IMcFarland violated, and unless restrained and enjoined will continue to violate, Rule 13b2-2 
[17 C.F.R. 
8 240.13b2-21. 
125. 
Through the conduct alleged above, Cornmesser knowingly provided substantial 
assistance to Kern, Feldman, and McFarland in their violations of Rule 13b2-2, and therefore 
7 
3 
COMPLAINT 

s  liable as an aider and abettor pursuant to Section 20(e) of the Exchange Act [15 U.S.C. 8 
78t(e)]. 
126. Cornmesser aided and abetted, and unless restrained and enjoined will continue 
o aid and abet, violations of Rule 13b2-2 [17 C.F.R. 
5 240.13b2-21. 
PRAYER FOR RELIEF  
The SEC respectfully requests that this Court:  
I. 
Find that Defendants Pereira, Stanton, Kern, Feldman, McFarland, and Cornmesser 
:ommitted the violations alleged; 
11. 
Enter an injunction permanently restraining and enjoining Defendants Pereira, Stanton, 
Kern, Feldman, McFarland, and Cornmesser fiom violating, directly or indirectly, or aiding and 
%bettingviolations of the law and rules alleged in this Complaint; 
III. 
Order defendants Pereira, Stanton, Kern, Feldman, and Cornmesser to disgorge all ill- 
gotten gains in the form of any benefits of any kind derived fiom the illegal conduct alleged in 
this Complaint, including, but not limited to, bonuses, commissions, and proceeds from stock 
sales, plus prejudgment and post-judgment interest; 
IV.  
Order Defendants Pereira, Stanton, Kern, Feldman, McFarland, and Cornmesser to 
pay civil penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. 
8 78u(d)(3)] in 
an amount to be determined by the Court, and post-judgment interest; 
v. 
Prohibit Defendants Pereira, Stanton, and Kern, pursuant to Section 21(d)(2) of the 
Exchange Act [15 U.S.C. 
§ 78u(d)(2)] from serving as an officer or director of any company 
having a class of securities registered with the SEC pursuant to Section 12 of the Exchange Act 

[I 5 U.S.C. 5 784 or that is required to file reports pursuant to Section 15(d) of the Exchange Act 
[15 U.S.C. 
4 78o(d)]; 
VI. 
Retain jurisdiction of this action in accordance with the principles of equity and the 
Federal Rules of Civil Procedure 
in order to implement and carry out the terms of all orders and 
decrees that may be entered, or to entertain any suitable application or motion for additional 
7 relief within the jurisdiction of this Court; and 
I 
Grant such relief as this Court may determine is just and necessary. 
DATED: October 12,2006. 
Leslie 
J. Hughes &sq. .(~olo.u5043) 
e 
C. R binson (Colo. 32734) 
c 
Attorneys for Plaintiff 
Securities and Exchange Commission 
1 801 California Street, Suite 1 500 
Denver, CO 80202-2656 
Telephone (303) 844- 1000 
Fax (303) 844-1068 
I 
COMPLAINT 

LESLIE J. HUGHES (CO Bar No. 15043) 
hughesli@sec. aov 
LEE C. ROBINSON (CO Bar No. 32734) 
[email protected] 
Attorneys for Plaintiff 
U.S. Securities and Exchange Commission 
1801 California Street, Suite 1500 
Denver, Colorado 80202-2656 
Telephone: (3 03) 844- 1000 
Fax: (303) 844-1068 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN JOSE DIVISION 

SECURITIES AND EXCHANGE Case No. 
COMMISSION, 

Plaintiff, 

v. COMPLAINT 

ROMULUS S. PEREIRA, 

ROBERT B. STANTON, 

L. JOHN KERN, 

ANDREW D. FELDMAN, 

WILLIAM F. McFARLAND, 

LORI H. CORNMESSER, 

Defendants. 

Plaintiff, Securities and Exchange Commission ("SEC") alleges: 

I. SUMMARY 

1. From June 2001 through June 2002 (the "relevant period''), Romulus S. Pereira, 

chief executive officer, Robert B. Stanton, chief financial officer, L. John Kern, executive vice 

president of worldwide sales, Andrew D. Feldman, vice president of marketing, and William R 

McFarland, vice president of finance, engaged in a scheme that defi-auded investors by making 

COMPLAINT 

mailto:hughesli@sec
mailto:[email protected]


materially false and misleading statements regarding the net revenues of Riverstone Networks, 

Inc. ("Riverstone"), a public company whose securities were traded on the NASDAQ national 

market. 

2. During the relevant period, Pereira, Stanton, Kern, Feldman, and McFarland 

negotiated, reviewed, approved, or were otherwise aware of sales transactions that involved side 

agreements with purchasers, under which the customer's payment for Riverstone product was 

contingent upon resale or the purchaser was granted full return, exchange, or cancellation rights 

and for which Riverstone improperly recognized revenues under Generally Accepted Accounting 

Principles ("GAAP"). 

3. As a direct result of these Defendants' actions, Riverstone falsely reported at least 

$29,613,000 of revenues in its financial statements as a result of the contingent sales, causing 

revenue overstatements for each of the four quarters in the relevant period ranging between 

14.31 % and 23.14 %. 

4. Pereira, Stanton, Kern, Feldman, and McFarland knew, or were reckless in not 

knowing, that it was improper for Riverstone to recognize revenues on these contingent sales 

under GAAP and that Riverstone's periodic filings with the SEC during the relevant period 

contained materially false and misleading information regarding its reported revenues. 

5.  Pereira, Stanton, and McFarland, who were responsible for Riverstone's 

accounting department and policies, also failed to devise, implement, and maintain an adequate 

system of internal accounting controls at Riverstone. 

6. Pereira, Stanton, Kern, Feldman, and McFarland, aided and abetted by 

Riverstone's director of sales operations, Lori H. Cornmesser, made or caused misstatements 

and omissions to Riverstone's accountants concerning the true nature of certain sales 

transactions. 

7. During the relevant period, each of the Defendants circumvented the internal 

accounting controls that Riverstone had in place and falsified Riverstone's books, records, and 

accounts. 

8. While Riverstone's stock price was artificially inflated due to its material 

COMPLAINT 



overstatement of revenues, each of the Defendants except McFarland realized substantial profits 

fi-om stock sales, bonuses, and other forms of compensation. 

9. Riverstone was a majority-owned subsidiary of Enterasys Networks, Inc., 

formerly known as Cabletron Systems Inc., (referred to jointly as "Enterasys"), until it was spun 

off as an independent public company on August 6, 2001. Riverstone's financial statements 

prior to August 6,2001, were included in Enterasys's consolidated financial reports. 

10. On February 1,2002, Enterasys announced that it was the subject of a formal SEC 

investigation and that it was reviewing its sales and revenue recognition practices for its Asia 

Pacific region and would therefore be delaying the release of its fourth quarter financial results. 

11. Just before the announcement on February 1, 2002, Riverstone's stock had a 

closing price of $15.72 per share. Within two weeks after Enterasys's announcement, 

Riverstone's stock was trading at $7.70 per share, a decline of over 50 percent. This represents a 

change in the value of the shareholders' stock of approximately $984 million. 

12. On August 27,2003, Riverstone filed an amended current report with the SEC on 

Form 8-K, which Stanton signed, announcing the company had overstated its revenues for fiscal 

year 2002 by as much as $85.5 million and for the nine months ended November 30,2002, by as 

much as $12.7 million. 

11. JURISDICTION AND VENUE 

13. The SEC brings this action to enforce the federal securities law pursuant to 

Sections 21(d) and 21(e) of the Securities Exchange Act of 1934 ("Exchange Act") 115 U.S.C. § 

78u(d) and 78u(e)]. 

14. This Court has jurisdiction over this action pursuant to Sections 21(e) and 27 of 

the Exchange Act 115 U.S.C. $8 78u(e) and 78aal. 

15. The Defendants, directly or indirectly, have made use of the means or 

instrumentalities of interstate commerce, or of the mails in connection with the transactions, acts, 

practices, and courses of business described in this Complaint. 

16. This district is appropriate for venue under Section 27 of the Exchange Act [15 

U.S.C. 5 78aal. Certain of the transactions, acts, practices, and courses of business constituting 

3 
COMPLAINT 



the violations of law alleged in this Complaint occurred within the Northern District of 

California. The Defendants worked in Riverstone's principle office in Santa Clara, California. 

The Defendants also reside within this district in Santa Clara or San Mateo counties. 

111. INTRA-DISTRICT ASSIGNMENT 

17. Assignment to the San Jose Division is appropriate pursuant to Civil Local Rule 

3-2(e) because a substantial part of the events that give rise to the Commission's claims occurred 

in Santa Clara County. 

Iv. DEFENDANTS 

18. Romulus S. Pereira, age 55, a resident of Saratoga, California, served as chief 

executive officer, president, and as a director of Riverstone fiom March 2000 until December 

2003. During the period March 4, 2001 to October 3 1, 2001, Pereira was also the executive at 

Riverstone in charge of worldwide sales. 

19. Robert B. Stanton, age 54, a resident of Palo Alto, California, served as 

Riverstone's chief financial officer and executive vice president of finance fiom August 2000 

until October 2003. 

20. L. John Kern, age 39, a resident of Hillsborough, California, served as 

Riverstone's executive vice president of worldwide sales fiom November 2001 until October 

2002. Kern was Riverstone's vice president of sales from January 2001 to November 2001 and 

its vice president of worldwide sales operations from April 2000 to January 2001. 

21. Andrew D. Feldman, age 36, a resident of Portola Valley, California, served as 

Riverstone's vice president of marketing eom March 2000 until July 2003. 

22. William E McFarland, age 54, a resident of Campbell, California, served as 

Riverstone's vice president of finance fiom August 2001 until June 2003. McFarland was in 

charge of Riverstone's accounting function, including its financial reporting. 

23. Lori H. Cornmesser, age 35, a resident of San Jose, California, served as 

Riverstone's director of sales operations from November 2001 to October 2002, and as senior 

manager of sales operations fiom December 2000 to October 2001. 

COMPLAINT 



V. RELATED ENTITY  

24. Riverstone Networks. Inc. is a Delaware corporation with its principal ofice in 

Santa Clara, California. During the relevant period, Riverstone's stock was registered with the 

SEC pursuant to Section 12(g) of the Exchange Act [15 U.S.C. 8 781(g)]. 

25. Riverstone designed and sold routers, which are devices for making or 

transferring connections between communication circuits carrying voice or data transmissions. 

VI. PEREIRA, STANTON, KERN, FELDMAN, AND MCFARLAND CAUSED 

RIVERSTONE TO REPORT IMPROPER REVENUES FROM CONTINGENT SALES 

26. Riverstone and its directors, officers, and employees were required to comply 

with the federal securities laws and regulations. Those laws and regulations were designed to 

ensure that the financial information of publicly traded companies, such as Riverstone, is 

accurately recorded and disclosed to the investing public. 

27. Under the federal securities laws and regulations, Riverstone was required, among 

other things: a) to make and keep books, records, and accounts that accurately and fairly 

reflected the company's business transactions; (b) to devise and maintain a system of internal 

accounting controls that provided reasonable assurances that the company's financial 

transactions were recorded in a manner that would permit the preparation of financial statements 

in conformity with GAAP; and (c) to file with the SEC quarterly reports (known as Forms 10-Q) 

and annual reports (known as Forms 10-K) that included accurate and reliable financial 

statements prepared in accordance with GAAP. 

28. As a public company, Riverstone was also required to retain accountants to 

review and audit its financial statements for compliance with GAAP. Officers and directors of 

public companies are required to provide accountants with information that is not false or 

misleading. 

29. Between June 1, 2001, and June 2, 2002, Defendants Pereira, Stanton, Kern, 

Feldman, and McFarland caused Riverstone to improperly recognize at least $29,613,000 in 

revenues from sales transactions involving rights of return, exchange, and cancellation, and other 

material contingencies such as extended payment terms, which were not accounted for at the 

5 
COMPLAINT 



time the transactions were originally recorded. As a result, revenues related to these sales either 

should not have been recognized or should have been recognized in a different period. 

30. Instead of including the foregoing contingencies in its sales contracts or the 

customers' purchase orders, Riverstone agreed to these contingencies in side agreements that, 

due to the acts or omissions of the Defendants, were not recorded in Riverstone's books, records, 

and accounts, or disclosed to the company's outside accountants. 

31. The contingent sales were often consummated within the last two weeks of a 

reporting period when Riverstone was struggling to meet its revenues target. 

32. Pereira, Stanton, Kern, Feldman, and McFarland knowingly, or recklessly, 

participated in Riverstone's material misstatements of revenues by negotiating, reviewing, or 

recording revenues on contingent sales and concealing the sales contingencies fiom Riverstone's 

outside accountants. 

33. Pereira, Stanton, and McFarland also knowingly, or recklessly, participated in 

Riverstone's material misstatements of revenues by failing to implement procedures to identify 

and properly account for contingent sales after gaining knowledge that millions of dollars of 

contingent sales had occurred at Riverstone. 

34. As a direct result of these Defendants' actions and omissions, Riverstone 

materially overstated its revenues for each quarter during the relevant period by at least: 

$10,382,000 or 23.1% for the quarter ended September 1, 2001; $7,519,000 or 14.3% for the 

quarter ended December 1, 2001; $7,658,000 or 17.55% for the quarter ended March 2, 2002; 

and $4,054,000 or 15.56% for the quarter ended June 1,2002. 

35. Pereira, Stanton, Kern, Feldman, and McFarland caused Riverstone to file 

three quarterly reports and one annual report with the SEC that contained false and misleading 

financial statements, which were not prepared in accordance with GAAP. 

36. These Defendants' violations resulted in various materially false statements 

contained in SEC filings and other documents, including: Riverstone's annual report on Form 10- 

K for the fiscal year fiom March 4, 2001 to March 2, 2002; Riverstone's quarterly reports on 

Forms 10-Q for the quarters fiom June 3, 2001 to September 1, 2001; September 2, 2001 to 

6 
COMPLAINT 



IDecember 1, 2001; and March 3, 2002 to June 1, 2002; all press releases and other statements 

incorporating the above documents; and the representation letters sent to Riverstone's outside 

accountants on September 20,2001, May 28,2002, and May 30,2002. 

37. Pereira and Stanton signed each of the Forms 10-Q and 10-K listed above 

I 
Idespite their knowledge that, or reckless indifference as to whether, the amount of revenues listed 

in each report was false and materially overstated. 

I A. The World Wide Technolow Side Agreement 

38. In August 2001, Feldman approached World Wide Technology, Inc. ("WWT"), a 

Missouri-based reseller, about placing a $2.8 million purchase order with Riverstone. 

39. To induce the sale, Feldman agreed via e-mail that WWT would not have to pay 

for the Riverstone product until it was resold ("sell-through payment term") and that WWT 

would have fbll exchange rights on the order. 

40. Feldman informed both Pereira and Stanton about the sell-through payment 

term prior to agreeing to it and Pereira specifically approved the term and instructed Feldman 

to close the WWT transaction. 

41. On August 28, 2001, four days before the close of Riverstone's second quarter, 

WWT submitted a $2.8 million purchase order to Riverstone that made reference to the sale 

contingencies contained in Feldman's e-mail. Feldman told WWT that he could provide a side 

agreement with the contingencies, but instructed WWT to remove the note referencing them 

fiom the purchase order. 

42. At the time Feldman entered into the side agreement with WWT, he was aware 

that Riverstone intended to recognize revenues on the WWT transaction, that the sale 

contingencies would prevent revenue recognition under GAAP, and that WWT's purchase order 

needed to omit any references to the contingencies if revenue was to be recognized. 

43. h response to Feldman's request, WWT sent a revised purchase order to 

Riverstone deleting the note. 

44. Despite the known contingencies, Pereira, Stanton, and Feldman caused 

1 COMPLAINT 



Ifrom the WWT sale. 

45. A month after the WWT sale, Riverstone's director of credit and collections, 

.I1 
Kathy Alvendia, learned of the sell-through payment term as a result of a collection call to 

IWWT. Alvendia informed Stanton, Feldman, and McFarland on October 2, 2001, that the 

i Iinability to collect the amount owed by WWT at the time would have a major impact on the 

aging of Riverstone's receivables. 

46. On October 11, 2001, Alvendia met with Feldman and McFarland, at which 

time Feldman confirmed the existence of the sell-through payment term. 

47. The next day, Alvendia sent an e-mail to Pereira, Stanton, Kern, Feldman, and 
1 1
IMcFarland stating that Riverstone gave WWT a sell-through payment term "as part of shipping 

! $3M in revenue for the qtr." 

I 48. Soon after Pereira and Stanton were told by Alvendia of the sell-through 

payment term given to WWT, they both had conversations with her in which they acknowledged 

that the WWT transaction was a problem. 

1 49. Three days later, on October 15, 2001, Pereira and Stantoo signed Riverstone's 
i 
7 Form 10-Q for the quarter ending September 1, 2001, which included all the revenues recorded I 
5 Ifiom the WWT transaction. 

50. Pereira, Stanton, and McFarland took no action to reverse the improper 

)Irevenues fiom the WWT transaction, which alone comprised 5.1% of Riverstone's reported 

revenues for the quarter. 

51. Absent the WWT sale, Riverstone would not have met its Wall Street revenues 

) Iexpectations for the second quarter of fiscal year 2002, nor would it have posted a profit. 

11 52. On September 20,2001, in connection with the quarterly review by Riverstone's 

5 Ioutside accountant, KPMG LLP, Pereira, Stanton, and McFarland signed a representation 

5 Iletter indicating that, among other things, all of Riverstone's sales transactions were final, there 

7 Iexisted no side agreements involving return rights, and that revenues were reserved to the extent 

% Isignificant fuhue obligations exist. 

1 COMPLAINT 



53. On May 28,2002, Pereira, Stanton, and McFarland also signed a representation 

letter to Riverstone's outside accountant, Ernst & Young LLP ("E&Y"), in connection with the 

year-end audit for the fiscal year ending March 2, 2002, stating that none of Riverstone's 

resellers had sell-through payment terms. 

54. On May 30, 2002, Pereira signed a separate representation letter to E&Y stating 

that he had no knowledge of any side agreements for the period March 4, 2001, to October 3 1, 

2001. 

55. Based on Pereira, Stanton, and McFarland's knowledge of the sell-through 

payment term connected with the WWT sale, their representations and omissions to Riverstone's 

outside accountants were false and misleading. 

56. Feldman's procurement of the revised purchase order fiom WWT concealed the 

sale contingencies fiom Riverstone's outside accountants. It also caused Riverstone's books, 

records, and accounts to be false. 

B. The Vnetek Side Agreement 

57. Riverstone personnel asked customers to remove non-standard terms fiom 

purchase orders and instead provide "clean" purchase orders (a purchase order with Riverstone's 

standard sales terms) and Riverstone personnel, in turn, committed to the non-standard terms in a 

side letter or verbal agreement. 
> 

58. Feldman and Kern were aware of this practice of getting a "clean" purchase 
1 

order, which was needed to "get through audit." 
1 

59. On November 29, 2001, three days before the end of Riverstone's third quarter, 

Vnetek Communications, Inc. ("Vnetek"), a New Hampshire-based reseller, sent Feldman a 

"clean" $2.0 million purchase order reflecting net 30 payment terms. 

60. However, to induce the sale, Feldman signed a side agreement with Vnetek 

giving it full return rights and a sell-through payment term for the order. 

'I 61. At the time he granted Vnetek the full return rights and a sell-through payment 
7 

term, Feldman knew these terms prohibited revenue recognition under GAAP. 
3 



62. The sale contingencies granted to Vnetek by Feldman were approved by Pereira, 

Stanton, and McFarland. 

63. Despite the known contingencies, Pereira, Stanton, Feldman, and McFarland 

zaused Riverstone to recognize $1.5 million of revenues for the third quarter that ended 

December 1,2001, from the Vnetek sale. 

64. Feldman's procurement of the "clean" purchase order from Vnetek and use of a 

side agreement concealed the sale contingencies from Riverstone's outside accountants. It also 

caused Riverstone's books, records, and accounts to be false. 

C. The Technica Side Agreement 

65. In early 2002, Riverstone was negotiating an opportunity for a large sale to the 

Defense Information Systems Agency ("DISA"), a branch of the United States Department of 

Defense. 

66. Riverstone used resellers to "pull deals forward," meaning to take product in 

advance of a sale to an end user so that Riverstone could recognize revenues in an earlier quarter 

for the purpose of meeting Wall Street expectations. This practice was known to Kern, 

Feldman, and McFarland. 

67. Because the DISA sale could not be consummated by the quarter ending March 2, 

2002, Riverstone's sales personnel approached Technica Corporation ("Technica"), a Virginia- 

based reseller, about purchasing the DISA inventory before March 2, 2002, with the 

understanding that Technica did not have to pay for the inventory until it was resold to DISA. 

68. To induce the sale, Kern approved a side agreement granting Technica a sell- 

through payment term and unlimited stock rotation rights for the order. 

69. On February 19, 2002, Technica placed a "clean" $2.0 million purchase order 

with Riverstone that did not reference the sales contingencies. 

70. At the time he approved the Technica side agreement, Kern knew it was improper 

to recognize revenues on the transaction under GAAP and that Riverstone intended to include the 

Technica deal in its revenues for the quarter. 

COMPLAINT 



71. On May 1,2002, a month before Riverstone filed its Form 10-K for the fiscal year 

ending March 2, 2002, Cornmesser received an e-mail fiom the Riverstone sales person on the 

Technica account informing her of the side agreement and the sell-through payment term, which 

she forwarded to McFarland. 

72. McFarland took no action on Cornmesser's e-mail, and did not request a copy 

of the side agreement. 

73. McFarland did not bring the Technica side agreement to the attention of 

Riverstone's outside accountants. 

74. Notwithstanding their knowledge of the contingency, Kern and McFarland 

caused Riverstone improperly to record $2.0 million of revenues in the quarter ending March 2, 

2002, on the Technica transaction. 

75. Just days after McFarland was informed of the Technica side agreement, 

Riverstone's sales personnel approached Technica to take additional product for the DISA deal. 

76. On May 23, 2002, in the last week of the quarter ending June 1, 2002, Kern 

approved a second side agreement granting Technica a sell-through payment term and unlimited 

stock rotation rights with respect to an additional $2.8 million purchase order. 

77. Kern caused Riverstone to recognize $2.8 million of revenues on the second 

Technica transaction for the quarter ending June 1, 2002, despite the existence of the side 

agreement. This transaction with Technica comprised 9.4% of Riverstone's revenues for the 

quarter. 

78. On May 30, 2002, within days after the execution of the second Technica side 

agreement, Kern signed a false representation letter to E&Y stating that he had no knowledge of 

any side agreements with Riverstone's customers. 

79. Shortly after being informed that Technica had been given a sell-through payment 

term for its initial $2.0 million purchase order, McFarland signed a false representation letter on 

May 28,2002, to E&Y stating that Riverstone had not agreed to sell-through payment terms with 

its resellers. 



80. Kern, McFarland, and Cornmesser caused Riverstone's books, records, and 

accounts to be false by failing to record the side agreements with Technica or by recording 

revenues without appropriate reserves on contingent sales. 

D. The TM Telecom Side Agreement 

8 1. In 2002, Riverstone was working on a potential investment transaction involving 

Ia Brazilian end-user called Intelig Telecom ("Intelig"). The parties contemplated that Riverstone 

Iwould invest approximately $1.0 million in Intelig in return for Intelig's commitment to purchase 

Riverstone product in the amount of Riverstone's investment. 
I 

82. Because the Intelig investment deal could not be completed in the quarter ending 
I 

June 1, 2002, Riverstone sales personnel engaged in discussions with Florida-based reseller TM 

Telecom, Inc. ("TM Telecorn") about submitting a $1.0 million purchase order prior to the end 
I 

:I of the quarter to purchase the product Riverstone intended to sell to Intelig, i.e., to pull the deal 

forward. 

83. To induce the sale, Kern approved granting TM Telecom a sell-through payment 

term for the order, which was conveyed to TM Telecom verbally by a Riverstone sales manager. 

I  
84. On May 24, 2002, in the last week of the quarter, TM Telecom submitted the 

purchase order to Riverstone for approximately $1.0 million of product. 
i 

I 
85. However, TM Telecom had no need for the Riverstone product and did not have 1 

the independent ability to pay for it. 
1 

I 86. The investment deal with Intelig was not completed by June 1,2002. 
I 

87. At the time that the side agreement with 'I'M Telecom was reached, Kern knew 

that the sale contingency would prohibit revenue recognition under GAAP, that Riverstone 

intended to recognize revenues on the TM Telecom deal, and that such contingencies were being 

concealed by omitting references to them in the sales documentation. 

88. Despite the contingent payment term, Kern caused Riverstone to recognize 

revenues of $1.0 million on the TM Telecom sale for the quarter ending June 1,2002. 

COMPLAINT 



89. The investment deal with Intelig was never consummated and TM Telecom 

yeturned all of the Riverstone product nine months later. 

90. Kern caused Riverstone's books, records, and accounts to be false by failing to 

record the side agreement with TM Telecom. 

E. Additional Contingent Sales Improperlv Recorded As Revenues 

91. In addition to the foregoing transactions, Stanton, Kern, and McFarland 

approved or had knowledge of the following additional contingent sales for which Riverstone 

improperly recognized revenues contrary to GAAP: 

a) Everbright,  $1.0 million improper revenues during the quarter that ended 

September 1,2001, involving Kern; 

b) Keytron S.A., $1.4 million total improper revenues during the quarters that ended 

September 1,2001, and December 2,2001, involving Kern; 

c) REON Broadband, $200,000 improper revenues during the quarter that ended 

September 1,200 1, involving Kern; 

d) Smartnet Technology, Inc., $500,000 improper revenues during the quarter that 

ended September 1,2001, involving Kern; 

e) ZTE Corporation, $1.4 million improper revenues during the quarter that ended 

September 1,200 1, involving Kern; 

f) Spacnet, $700,000 improper revenues during the quarter that ended December 1, 

200 1, involving Kern and McFarland; 

g) Landata Payama, S.A., $2.1 million total improper revenues during the quarters 

that ended December 1,200 1, and March 2,2002, involving Kern; 

h) All Networks, $900,000 improper revenues during the quarter that ended 

December 1,2001, involving Stanton, Kern, and McFarland; 

i) Cornmverge, $2.1 million improper revenues during the quarter that ended March 

2,2002, involving Kern; 

COMPLAINT  



j) Vodatel, $2.6 million improper revenues during the quarter that ended March 2, 

2002, involving Kern; 

k) KDC Corp., $1.5 million improper revenues during June 1,2002, involving Kern 

and McFarland; 

1) Solunet, Inc., $5 million improper revenue during the quarters that ended 

September 1,200 1, December 1,200 1, and March 2,2002, involving Kern; and 

m) Trispec, $1.0 million improper revenues during the quarter that ended September 

1,2001, December 1,2001, March 2,2002, involving Kern. 

VII. RIVERSTONE'S SYSTEM OF INTERNAL ACCOUNTING CONTROLS WAS  

INADEQUATE AND EACH OF THE DEFENDANTS CONTRIBUTED TO  

RIVERSTONE'S IMPROPER RECORDKEEPING AND CONCEALED  

INFORMATION FROM RIVERSTONE'S OUTSIDE ACCOUNTANTS  

92. Riverstone did not devise or maintain a system of internal accounting controls that 

allowed it to prepare financial statement in conformity with GAAP. 

93. In some instances, non-standard sales terms, including sell-through payment 

terms, were not communicated fiom the sales group to members of the finance department. This 

problem was specifically brought to the attention of Stanton, Kern, and McFarland, but they 

never instituted a formal policy to ensure that all non-standard sales terms were properly 

documented and communicated to the finance department. 

94. Pereira, Stanton, and McFarland did not perform any investigation and failed to 

correct Riverstone's books, records, and accounts when sales contingencies were brought to their 

attention. 

95. Kern, Feldman, and Cornmesser encouraged others to remove or misstate non- 

standard sales terms on purchase orders, resulting in inaccurate and incomplete sales records. 

96. Cornmesser failed to keep complete customer files or preserve their integrity, 

removed side agreements fiom customer files at the direction of Kern, entered false information 

into Riverstone's order management system, and circumvented Riverstone's credit approval 

process. 

COMPLAINT 



97. Pereira, Stanton, and McFarland knew, or were reckless in not knowing, that 

nternal control weaknesses existed at Riverstone, and they failed to take adequate steps to 

.ectify them. 

98. Each of the Defendants, in a collaborative effort to conceal sales contingencies or 

~ther revenue obstacles from Riverstone's outside accountants, was responsible for the 

ralsification of Riverstone's accounting records or knowingly circumvented the accounting 

~oliciesthat Riverstone had implemented. 

VIII. DEFENDANTS RECEIVED ILL-GOTTEN GAINS  

AS A RESULT OF THEIR CONDUCT  

99. Between June 1, 2001, and June 1, 2002, while the Defendants knowingly or 

eecklessly caused Riverstone to falsely overstate revenues in financial statements that were 

-eported to the SEC and investors, or falsified Riverstone's accounting records, each of the 

Defendants, except McFarland, sold Riverstone stock at artificially inflated prices or received 

additional compensation as a result of their illegal conduct. 

100. The Defendants received at least the following estimated amounts of 

:ompensation and other financial gains: 

a) During the relevant period, Pereira received at least $1,236,712 in gains from 

stock sales. 

b) During the relevant period, Stanton received at least $533,273 in gains from stock 

sales. 

c) During the relevant period, Kern received at least $503,410 in gains from stock 

sales, and $1 54,324 in sales commissions. 

d) During the relevant period, Feldman received at least $998,499 in gains from 

stock sales, and $3,808 in bonuses. 

e) During the relevant period, Cornmesser at least received $57,726 in gains from 

stock sales, and $4,000 in bonuses. 

COMPLAINT  



FIRST CLAIM FOR RELIEF  
Fraud -Violations of Exchange Act Section 10(b) and Rule 10b-5  

[15 U.S.C. 5 78j(b).and 17 C.F.R 5 240.10b-51  
(Against Defendants Pereira, Stanton, Kern, Feldman, and McFarland)  

101. The SEC realleges paragraphs 1 through 100 above. 

102. Based on the conduct alleged above, Pereira, Stanton, Kern, Feldman, and 

McFarland, directly or indirectly, with scienter, in connection with the purchase or sale of 

securities, by the use of means or instrumentalities of interstate commerce, the mails, or any 

facility of a national securities exchange, employed devices, schemes, or artifices to defkaud; 

made untrue statements of material fact or omitted to state material facts necessary in order to 

make the statements made, in light of the circumstances under which they were made, not 

misleading; or engaged in acts, practices, or courses of business which operated or would operate 

as a fkaud or deceit upon any person; in violation of Section lo@) of the Exchange Act and Rule 

lob-5. [15 U.S.C. $78j(b) and 17 C.F.R. 8 240.10b-51 

103. Pereira, Stanton, Kern, Feldman, and McFarland violated, and unless 

restrained and enjoined will in the future violate, Section lo@) of the Exchange Act and Rule 

1 Ob-5. 

104. Based on the conduct alleged above, Riverstone violated Section 100) of the 

Exchange Act and Rule lob-5. 

105. Alternatively, based on the conduct alleged above, Kern and Feldman knowingly 

provided substantial assistance to Riverstone in its violations of Section lo@) of the Exchange 

Act and Rule lob-5, and therefore each is liable as an aider and abettor pursuant to Section 20(e) 

of the Exchange Act [15 U.S.C. 78t(e)]. 

106. Kern and Feldman aided and abetted, and unless restrained and enjoined will 

continue to aid and abet, violations of Section lo@) of the Exchange Act and Rule lob-5 [15 

U.S.C. 8 78j(b) and 17 C.ER. 8 240.10b-51. 



SECOND CLAIM FOR RELIEF 
False SEC Filings - Exchange Act Section 13(a) and Exchange Act 

Rules 12b-20,13a-1, and 13a-13 
[I5 U.S.C. 5 78m(a) and 17 C.F.R $9 240.12b-20, 

240.13a-1, and 240.13a-131 
(Against Defendants Pereira, Stanton, Kern, Feldman, and McFarland) 

107. The SEC realleges paragraphs 1 through 100 above. 

108. Riverstone filed with the SEC three quarterly reports on Forms 10-Q and one 

annual report on Form 10-K that contained materially false and misleading information in 

violation of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. 115 U.S.C. 

5 78m(a) and 17 C.F.R. 55 240.12b-20,240.13a-1 and 240.13a-131. 

109. Based on the conduct alleged above, Pereira, Stanton, Kern, Feldman, and 

McFarland knowingly provided substantial assistance to Riverstone in its violations of Section 

13(a) of the Exchange Act and Rules 12b-20, 13a- 1 and 13a- 13, and therefore each is liable as an 

aider and abettor pursuant to Section 20(e) of the Exchange Act [15 U.S.C. 4 78t(e)]. 

1 10. Pereira, Stanton, Kern, Feldman, and McFarland aided and abetted, and unless 

restrained and enjoined will continue to aid and abet, violations of Section 13(a) of the Exchange 

Act and Rules 12b-20, 13a-1, and 13a-13 115 U.S.C. 5 78m(a) and 17 C.F.R. $9  240.12b-20, 

240.13a-1 and 240.13a-131. 

THIRD CLAIM FOR RELIEF  
False Books and Records - Exchange Act Section 13(b)(5) and Rule 13b2-1  

[15 U.S.C. 5 78m(b)(5) and 17 C.F.R 5 240.13b2-11  
(Against All Defendants) 

1 1 1. The SEC realleges paragraphs 1 through 100 above. 

112. Based on the conduct alleged above, Pereira, Stanton, Kern, Feldman, 

McFarland, and Cornmesser knowingly circumvented Riverstone's system of internal 

accounting controls, knowingly falsified Riverstone's books, records, or accounts, and directly or 

indirectly falsified or caused to be falsified books, records, or accounts described in Section 

13@)(2) of the Exchange Act [15 U.S.C. 5 78m(b)(2)]. 

COMPLAINT 



113. Pereira, Stanton, Kern, Feldman, McFarland, and Cornmesser, violated, and 

: Iunless restrained and enjoined will continue to violate, Section 13(b)(5) of the Exchange Act and 

I ( Rule 13b2-1 [15 U.S.C. 8 78m(b)(5) and 17 C.F.R. 8 240.13b2-11. 

. FOURTH CLAIM FOR RELIEF 
False Books and Records - Exchange Act Section 13@)(2)(A) 

[15 U.S.C. 5 78m(b)(2)(A)] 

(Against All Defendants) 

( 1 14. The SEC realleges paragraphs 1 through 100 above. 
, 

I 1 15. Based on the conduct alleged above, Riverstone violated Section 13(b)(2)(A) of 
I 

the ~ x c h b ~ e  Act [15 U.S.C. 8 78m(b)(2)(A)] which requires issuers of securities registered 
1 

!I 
pursuant to Section 12 of the Exchange Act [15 U.S.C. $ 7811 to make and keep books, records, 

and accounts which in reasonable detail accurately and fairly reflect its transactions and 

, Idisposition of assets. 

116. Based on the conduct alleged above, Pereira, Stanton, Kern, Feldman, 
I.I1 

McFarland, and Cornmesser knowingly provided substantial assistance to Riverstone in its 

.Iviolations of Section 13(b)(2)(A) of the Exchange Act, and therefore each is liable as an aider 
1 

and abettor pursuant to Section 20(e) of the Exchange Act [15 U.S.C. $78t(e)]. 

117. Pereira, Stanton, Kern, Feldman, McFarland, and Cornmesser aided and 
II
)Iabetted, and unless restrained and enjoined will continue to aid and abet, violations of Section 

)I13(b)(2)(A) of the Exchange Act [15 U.S.C. $ 78m(b)(2)(A)]. 

FIFTH CLAIM FOR RELIEF 
False Books and Records - Exchange Act Section 13(b)(2)(B)(ii)) 

[ISU.S.C. 5 78m(b)(2)(B)(ii)] 
(Against Defendants Pereira, Stanton, and McFarland) 

1 1 18. The SEC realleges paragraphs 1 through 100 above. 

I 1 19. Based on the conduct alleged above, Riverstone violated Section 13(b)(2)(B)(ii) 

, Iof the Exchange Act [15 U.S.C. 5 78m(b)(2)(B)(ii)], which obligates issuers of securities 

1 1  registered pursuant to Section 12 of the Exchange Act [15 U.S.C. 8 784 to devise and maintain a 

; system of internal accounting controls sufficient to provide reasonable assure that its transactions I 



are recorded as necessary to permit preparation of financial statements in conformity with GAAP 

or other criteria applicable to the statements. 

1 
120. Based on the conduct alleged above, Pereira, Stanton, and McFarland 

knowingly provided substantial assistance to Riverstone in its violations of Section 

I13@)(2)@)(ii), and therefore each of them liable as an aider and abettor pursuant to Section 

20(e) of the Exchange Act [15 U.S.C. 8 78t(e)]. 

121. Pereira, Stanton, and McFarland aided and abetted, and unless restrained and 

enjoined will continue to aid and abet, violations of Section 13@)(2)(B)(ii) of the Exchange Act 

I 1 [15 U.S.C. 8 78m(b)(2)@)(ii)]. 

SIXTH CLAIM FOR RELIEF 
Deceit of Accountants - Exchange Act Rule 13132-2 

[17 C.F.R 5 240.13b2-21 
(Against All Defendants) 

;I 122. The SEC realleges paragraphs 1 through 100 above. 

C 123. By engaging in the acts and conduct alleged above, Pereira, Stanton, Kern, 

IFeldman, and McFarland, who were directors or officers of Riverstone when they engaged in 

1 the alleged acts and conduct, directly or indirectly, knowingly made or caused to be made 

'( materially false or misleading statements, or omitted to state or caused another person to omit to 

Istate, material facts necessary in order to make the statements made, in light of the circumstances 

under which they were made, not misleading to an accountant in connection with an audit or 

examination of the financial statements of Riverstone required to be made or the preparation or 

filing of reports required to be filed by Riverstone with the SEC. 

124. Through the conduct alleged above, Pereira, Stanton, Kern, Feldman, and 

'IMcFarland violated, and unless restrained and enjoined will continue to violate, Rule 13b2-2 

[17 C.F.R. 8 240.13b2-21. 

125. Through the conduct alleged above, Cornmesser knowingly provided substantial 

assistance to Kern, Feldman, and McFarland in their violations of Rule 13b2-2, and therefore 

7 

3 

COMPLAINT 

mailto:78m(b)(2)@)(ii)]


s liable as an aider and abettor pursuant to Section 20(e) of the Exchange Act [15 U.S.C. 8 

78t(e)]. 

126. Cornmesser aided and abetted, and unless restrained and enjoined will continue 

o aid and abet, violations of Rule 13b2-2 [17 C.F.R. 5 240.13b2-21. 

PRAYER FOR RELIEF  

The SEC respectfully requests that this Court:  

I. 

Find that Defendants Pereira, Stanton, Kern, Feldman, McFarland, and Cornmesser 

:ommitted the violations alleged; 

11. 

Enter an injunction permanently restraining and enjoining Defendants Pereira, Stanton, 

Kern, Feldman, McFarland, and Cornmesser fiom violating, directly or indirectly, or aiding and 

%bettingviolations of the law and rules alleged in this Complaint; 

III. 

Order defendants Pereira, Stanton, Kern, Feldman, and Cornmesser to disgorge all ill- 

gotten gains in the form of any benefits of any kind derived fiom the illegal conduct alleged in 

this Complaint, including, but not limited to, bonuses, commissions, and proceeds from stock 

sales, plus prejudgment and post-judgment interest; 

IV.  

Order Defendants Pereira, Stanton, Kern, Feldman, McFarland, and Cornmesser to 

pay civil penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. 8 78u(d)(3)] in 

an amount to be determined by the Court, and post-judgment interest; 

v. 
Prohibit Defendants Pereira, Stanton, and Kern, pursuant to Section 21(d)(2) of the 

Exchange Act [15 U.S.C. § 78u(d)(2)] from serving as an officer or director of any company 

having a class of securities registered with the SEC pursuant to Section 12 of the Exchange Act[I 5 U.S.C. 5 784 or that is required to file reports pursuant to Section 15(d) of the Exchange Act 

[15 U.S.C. 4 78o(d)]; 

VI. 

Retain jurisdiction of this action in accordance with the principles of equity and the 

Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and 

decrees that may be entered, or to entertain any suitable application or motion for additional 

7 relief within the jurisdiction of this Court; and I 
Grant such relief as this Court may determine is just and necessary. 

DATED: October 12,2006. 

Leslie J. Hughes &sq. .(~olo.u5043) 

e C. R binson (Colo. 32734) c 
Attorneys for Plaintiff 
Securities and Exchange Commission 
1 801 California Street, Suite 1 500 
Denver, CO 80202-2656 
Telephone (303) 844- 1000 
Fax (303) 844-1068 

I 

COMPLAINT