Communication technology company Pareteum approved for bankruptcy loan

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

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  • Judge says funding needed given limited cash
  • Company filed lawsuit after SEC fined for overstating revenue

(Reuters) – Communications technology company Pareteum Corp, which has been plagued by charges of accounting fraud, won court approval on Tuesday to secure a loan while it sells its bankrupt assets.

US Bankruptcy Judge Lisa Beckerman in Manhattan granted the company the request to access, on a temporary basis, half of a $6 million loan from an existing lender.

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

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Pareteum is seeking 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 forgiveness of $60 million of senior debt.

The offer will be subject to competing offers. The company hopes to complete the sale by mid-July.

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

Pareteum offers cloud-based Wi-Fi to communication service providers, among other services and products. The company’s acting chief financial officer, Laura Thomas, said in court documents that the company’s decision to file for bankruptcy was the result of an increase in legal fees, as well as a drop in revenue caused by the economic impact of the COVID-19 pandemic.

The company “vigorously defended itself” against lawsuits over the earnings reports, which cost it millions in legal costs, she said.

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

The case is In re Pareteum Corp, US 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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Maria Chutchian

Thomson Reuters

Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.

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