Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, June 18, 2009

Comverse Technology Settles Backdating, Accounting Charges with SEC

The SEC today filed a settled civil action in the United States District Court for the Eastern District of New York against Comverse Technology, Inc. ("Comverse") alleging that it engaged in two separate fraudulent schemes, during the course of more than a decade, to materially misstate its financial condition and performance metrics. According to the Complaint, as a result of its improper conduct, Comverse was able to portray itself as a company with steady, but measured growth, which regularly met analysts' earnings targets. 

According to the Commission's Complaint, the first scheme involved improper backdating of Comverse stock options granted between 1991 and 2001. With respect to the backdating scheme, the Complaint alleges:

Comverse routinely backdated grants of stock options made to the Company's employees, officers, and others to coincide with historically low closing prices for the Company's common stock, distributing options from at least 26 backdated grants. Comverse also made grants to fictitious employees in order to establish an illegal pool of options thereby creating a slush fund of "in-the-money" stock options to later use in circumvention of the approved stock option grant process.

Comverse's second fraudulent scheme involved several improper accounting practices. According to the Complaint:

Comverse improperly built up, and subsequently improperly released, certain reserves to meet earnings targets, improperly reclassified certain expenses to manipulate other performance metrics, and made false disclosures about its backlog of sales orders.  The manipulation of earnings allowed Comverse to meet or exceed Wall Street analysts' consensus earnings estimates in every quarter between 1996 and the first quarter of 2001.

Without admitting or denying the allegations of the Commission's Complaint, Comverse has consented to the entry of a final judgment permanently enjoining it from violating the antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws. The Commission previously charged former Comverse Chairman and CEO Jacob "Kobi" Alexander, former Comverse Chief Financial Officer David Kreinberg, and former Comverse General Counsel William F. Sorin. Kreinberg and Sorin each settled with the Commission.

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Accounting forgeries are sadly so common these days.

Posted by: J Grants | Jun 19, 2009 12:51:44 AM

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