RealTime IT News

Stock Options Scandal Hits Comverse

Three former Comverse Technology executives are facing criminal and civil charges for fraudulently backdating millions of stock options.

Former CEO Jacob "Kobi" Alexander, former CFO David Kreinberg and former General Counsel William F. Sorin were charged Wednesday with conspiracy to commit securities fraud, mail fraud and wire fraud.

Kreinberg and Sorin are expected to make court appearances Wednesday afternoon in Brooklyn, N.Y. An arrest warrant has been issued for Alexander.

In a related action to the Department of Justice (DoJ) charges, the Securities and Exchange Commission (SEC) filed a civil fraud case against the three men for filing false annual and quarterly financial reports and proxy statements from 1991-2005.

The criminal charges represent a widening of the federal probe into growing stock options scandal.

Last month, the SEC filed civil stock fraud charges against Gregory Reyes, the former CEO of Brocade Communications Systems and Stephanie Jensen, Brocade's former vice president of human resources, for granting backdated stock options to employees.

"The Justice Department is determined to see that our markets operate fairly and honestly," Paul J. McNulty, a U.S. deputy attorney general, said in a statement.

"We cannot allow corporate leaders to operate under different rules, using 20-20 hindsight to line their own pockets. We will continue to pursue misconduct in any boardroom where we find it."

Comverse , a New York-based multimedia software and systems firm, said in a statement the company has cooperated fully with the DoJ and the SEC, noting that the men charged are no with the company.

According to the DOJ complaint, Alexander, Kreinberg and Sorin pocketed millions in profits through their backdating scheme while issuing false and misleading financial statements to stockholders about the real value of the options.

As part of Wednesday's charges, federal authorities seized more than $45 million in two investment accounts held in Alexander's name.

The DoJ called the accounts a slush fund for Alexander's stock options manipulations.

In addition, the DoJ alleges the accounts were used as part of a $57 million money-laundering scheme involving the transfer of funds to accounts in Israel to conceal the money from U.S. authorities.

"The defendants abused their positions in order to enrich themselves and favored employees at the expense of the investing public," U.S. Attorney Roslynn R. Mauskopf said in a statement.

The DoJ and the SEC claim Alexander, Kreinberg and Sorin fraudulently backdated options awarded under various Comverse stock option plans to days when the stock was trading at periodic low points.

According to complaint, the three defendants set an option price of $35 per share in 1999, well below the actual market price on the day the options were actually granted.

Alexander allegedly took 300,000 of the backdated 1999 options for a paper profit of $11 million.

On two occasions in 2000, the DoJ claims, Alexander transferred approximately 88,000 options from the slush fund to another unnamed Comverse executive.

The options had a four-year vesting period but Alexander made the options immediately available.

The day after receiving the options, the executive exercised the options when the stock was trading for twice the strike price, making a profit of $4 million.