Friday, November 17, 2006
Comverse Technology, Inc. became embroiled in the options-timing controversy when former CEO Kobi Alexander, former CFO David Kreinberg, and former general counsel William Sorin, were charged with securities fraud in July 2006. Kreinberg and Sorin have agreed to plea bargains with the government, and reports are that Kreinberg will finger Alexander for offering to pay him to take the blame for the back-dating. The latest news from the company is that problems go much deeper than the options practices and involve possible wide-scale accounting fraud. A Comverse press release (here) states:
[I]n connection with the ongoing investigation by the Special Committee of the company’s Board of Directors of the company’s stock option practices and related accounting matters, the company identified errors in the recognition of revenue related to certain contracts, errors in the recording of certain deferred tax accounts and the misclassification of certain expenses in earlier periods. In addition, based on information provided to the company, areas of financial reporting under investigation include the possible misuse of accounting reserves and the understatement of backlog in fiscal 2002 and prior periods.
If there are significant misstatements in Comverse's books and records, it may put the options back-dating in a new light. Rather than just executives lining their own pockets, it could be a systematic fraud to inflate the stock and then cash in surreptitiously by further inflating the value of the options by timing them for a low price that was then artificially surpassed through accounting fraud -- greed squared, if you will. Alexander is reputed to have boasted of his attention to the company's financial filings, which makes it even more difficult to offer the "honest-but-ignorant" CEO defense.
Alexander is still in Namibia awaiting an extradition hearing that is now scheduled to start on April 25. He left the United States in June 2006, shortly before prosecutors filed charges in the case. With five months before the hearing, prosecutors will have time to gather evidence that could link Alexander to a broader fraud at the company and strengthen the case so that it is more than just options-timing. A Long Island Business News article (here) discusses the extradition proceeding. (ph)