Ciena settles False Claims Act suit, SBA dispute to clear plan path

By Caroline Salls

Pittsburgh, May 6 - Ciena Capital LLC requested court approval of a settlement of a False Claims Act lawsuit and outstanding disputes with the Small Business Administration, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, Ciena and its SBA-lending subsidiary debtor Business Loan Center, LLC "were mired in multiple intractable disputes with the SBA that threatened the debtors' viability as going concerns."

In addition, Ciena and Business Loan Center were among the defendants named in a lawsuit filed under the False Claims Act that sought hundreds of millions of dollars in damages.

The company said the disputes with the SBA and the False Claims Act litigation were two of the principal factors that drove the filing of its Chapter 11 bankruptcy case.

"The settlement agreements not only provide an integrated and complete resolution of the most contentious and complex issues in the Chapter 11 cases, they pave the way for a largely if not completely consensual plan confirmation process," Ciena said in the motion.

Under the False Claims Act settlement, the United States and related parties James R. Brickman and Greenlight Capital, Inc. will dismiss the lawsuit in exchange for Business Loan Center granting the United States an allowed general unsecured claim under which it would receive two actual cash distributions totaling $10.1 million.

One of the distributions would be for $8.2 million and would be paid in partial settlement of the lawsuit, and the second would be for $1.9 million, in full satisfaction of claims for lawsuit-related costs and fees.

Under the SBA settlement, the parties would provide mutual releases, and the SBA will vote in favor of and support confirmation of Ciena's plan of reorganization.

The SBA has also agreed to support an impending settlement of challenge and avoidance actions filed by the SBA and the official committee of unsecured creditors against Ciena's pre-bankruptcy secured lenders.

Ciena is a New York-based portfolio company for Allied Capital, a business development company that invests long-term debt and equity capital in middle market businesses. The company filed for bankruptcy on Sept. 30, 2008. Its Chapter 11 case number is 08-13783.

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