Communications tech company Pareteum approved to tap bankruptcy loan


A plaque with the Seal for the U.S. District Bankruptcy Court for the Southern District of New York is seen over the entrance in Manhattan, New York, U.S., January 9, 2020. REUTERS/Brendan McDermid

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  • Judge says financing is needed in light of limited cash on hand
  • Company filed after SEC fine for overstating revenues

(Reuters) – Communications technology company Pareteum Corp, which has been plagued by accounting fraud accusations, secured court approval on Tuesday to tap a loan while it sells its assets in bankruptcy.

U.S. Bankruptcy Judge Lisa Beckerman in Manhattan granted the company’s request to access, on a temporary basis, half of a $6 million loan provided by an existing lender.

Pareteum, a New York-based, publicly traded company, filed for Chapter 11 protection on Sunday with about $80 million in debt. The company is facing eight shareholder lawsuits filed in the wake of a Securities and Exchange Commission investigation into inflated revenue reports, which resulted in a $500,000 fine.

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Pareteum is looking to sell its assets to Circles MVNE Pte Ltd, which is also providing the $6 million loan, and Channel Ventures Group LLC in exchange for a combined $60 million in senior debt forgiveness.

The bid will be subject to competing offers. The company is hoping to complete the sale by mid-July.

When she approved the loan, Beckerman noted that the financing is necessary because the company only has about $200,000 in cash on hand. Pareteum intends to continue operating during the Chapter 11 process.

Pareteum offers cloud-based Wi-Fi to communications service providers, among other services and products. The company’s interim chief financial officer, Laura Thomas, said in court papers that the company’s decision to file for bankruptcy was the result of increased legal expenses, as well as lower revenues caused by the economic impact of the COVID-19 pandemic.

The company has “vigorously defended” itself against the lawsuits over the revenue reports, which has caused it to incur millions in legal costs, she said.

In October 2019, Pareteum conducted an internal investigation that determined the company had inflated revenues for 2018 by 21% and the first half of 2019 by 25%. The SEC imposed the fine in September 2021 after finding the inflated revenue reports were the result of improper accounting practices. The SEC also found that former employees of the company attempted to hide those practices from the company’s auditor.

The case is In re Pareteum Corp, U.S. Bankruptcy Court, Southern District of New York, No. 22-10615.

For Pareteum: Frank Oswald, Brian Moore and Amy Oden of Togut Segal & Segal; and Michael Handler, Thaddeus Wilson and Leia Clement Shermohammed of King & Spalding

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