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.