Thursday, September 28, 2006

Dropping the Hammer on Kobi Alexander

Former Comverse Technology CEO Kobi Alexander went into hiding in July when criminal charges appeared on the horizon, along with $57 million, according to the government, and wound up in a place few would have expected.  Alexander was arrested in Namibia, which was once part of South Africa and only gained independence in 1990.  The country does not have an extradition treaty with the United States, and while there is one between the U.S. and South Africa, it does not appear that it applies now that Namibia is independent.  Therefore, the Republic of Namibia's Parliament enacted a law, at the request of the Justice Ministry, that went into effect on September 27 to permit Alexander to be extradited to the U.S.  A Bloomberg article (here) discusses the Parliament's enactment.  A press release issued by the U.S. Attorney's Office for the Eastern District of New York (here) states, "The arrest was made pursuant to a provisional warrant issued by a Namibian court at the request of the United States government. ALEXANDER will be brought before a court in Windhoek, Namibia within 48 hours. The United States intends to seek ALEXANDER’s extradition to the United States . . . ."

When he returns to the U.S., Alexander will face an extensive criminal indictment (available below courtesy of the Wall Street Journal Law Blog) related to backdating options at Comverse that was returned on September 20 and sealed until the arrest.  Two other Comverse executives, former CFO David Kreinberg and former general counsel William Sorin, were initially charged in a criminal complaint with conspiracy along with Alexander in July, but they are not named in the current indictment.  Given the timing of the indictment, and the decision not to include Sorin and Kreinberg in it at this time, I suspect prosecutors learned that Alexander was in Namibia and worked behind the scenes with the Namibian government to have the extradition law enacted, at which point he could be arrested and the indictment unsealed.

The 32-count indictment charges Alexander with conspiracy, securities fraud, filing false documents with the SEC, mail/wire fraud, and money laundering.  Forfeiture counts seek $138 million and two apartments he owns in New York City (on West 57th and West 56th for those keeping score).  The 18 mail/wire fraud counts, based largely on the filing of the false documents, allege that the scheme was to defraud "the investing public."  Rather than charging Alexander with defrauding Comverse shareholders, which is the more common basis supporting a fraud claim related to options backdating, the government seems to have opted for a much more amorphous theory of the fraudulent scheme.  Given that the investing public includes virtually anyone with a brokerage, mutual fund, or retirement account -- probably a large percentage of the adults in this country -- it doesn't seem that this type of allegation meets the requirements for a "money/property" scheme.  Usually the government charges that the defendant gained something of value from a victim, but when that victim is just about everyone, none of whom dealt directly with the defendant, it may be harder to prove that Alexander schemed to defraud "the market."  Moreover, the government does not allege a "right of honest services" fraud under Sec. 1346, which might have been a plausible charge for depriving Comverse of his honest services through the breach of fiduciary duty by filing false documents and backdating options grants.resulting in the personal gains from the options grants.  I expect the defense will seek to knock out these charges early on through a motion to dismiss for failure to allege properly all the elements of the offense.  (ph)

Download alexander_indictment_september_2006.pdf

                                                                                                            

UPDATE: A Wall Street Journal article (here) discusses the circumstances surrounding the arrest of Alexander in Namibia.  Apparently he did not do much, if anything, to hide his identity while living there.  It may be that he believed, or was told, that the absence of an extradition treaty between Namibia and the U.S. would protect him.  That assessment turned out to be wrong.

http://lawprofessors.typepad.com/whitecollarcrime_blog/2006/09/dropping_the_ha.html

Fraud, International, Prosecutions, Securities | Permalink

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