Federal investigators want a look at Riverstone Networks' (RSTN) books, and the company says the informal inquiry may lead to a formal investigation.
Securities and Exchange Commission
is looking into accounting practices at the Santa Clara, Calif., networking shop. Riverstone, the No. 3 router maker behind
, says it's cooperating with the probe.
Already struggling in a three-year network equipment spending slowdown, Riverstone shares fell 46 cents, or 31%, to $1.03 in morning trading Friday.
News of the probe comes at a hectic time for the company. Earlier this week, Riverstone bowed to the corporate-governance-reform movement spurred by the business scandals of last year, saying it would separate the CEO and chairman posts held by Romulus Pereira. Pereira will remain acting CEO while the company searches for a replacement and will stay on as chairman.
The company has been trying to undertake a turnaround after a long dry spell in telecom. But Riverstone has been optimistic. Despite seeing sales decline by two-thirds over the last year, to $70 million in fiscal 2003 from $210 million in 2002, executives last month predicted that first-quarter sales would at least stay flat if not rise from fourth-quarter levels.
Some industry observers point to a recent accounting settlement by Riverstone's sister company,
. The two companies were originally spun from
Though Enterasys admitted no wrongdoing in settling an accounting investigation by the SEC, the company restated five quarters of financial results, fired its top executives and relocated its headquarters to Andover, Mass., from Rochester, N.H.