Comverse Technologies Says Former Managers Falsified Financial Reports - InformationWeek

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Comverse Technologies Says Former Managers Falsified Financial Reports

The board accuses former managers of "stock option backdating" and "earnings management."

The new management of Comverse Technology, a networking and communications company, has accused former executives of inflating earnings and backdating options in 8-K Securities and Exchange Commission filings this week.

The SEC filings focus on behavior by former chief executive Jacob "Kobi" Alexander and give a rare view into corporate malfeasance. Alexander is a fugitive from U.S. law in Namibia, where he has been fighting extradition to face charges filed by the U.S. Attorney's Office in Brooklyn, N.Y.

Still defiant, Alexander last week filed a lawsuit against his old company, seeking severance pay in addition to other compensation that totals $72 million. He has continued to maintain his innocence of the charges against him.

The 8-K report by a special committee of the Comverse board of directors describes investigations of "stock option backdating" and another on "earnings management."

Between 1991 and 2001, the 8-K filing stated, Alexander and Comverse general counsel William Sorin, and sometimes CFO David Kreinberg, were involved in backdating stock options for more than 5,000 grantees.

"The recipients of such grants ranged from low-level employees to senior executives," the report stated. It noted that other employees and executives had no knowledge of the options manipulation. The filing also said that Alexander and Kreinberg had established "a special reserve fund comprised of options with favorable exercise prices from which options were granted in order to address special employment and recruiting needs."

The fund included fictitious employees, and dummy accounts were also utilized in the scheme, the filing said.

The Comverse internal investigations also found that financial results "were intentionally misstated as a way of aligning the company's performance with Wall Street expectations" from at least 1996 through 2003.

Comverse chairman Mark C. Terrell, in a statement, praised the investigations as an important first step "in putting the issues addressed by the investigations behind us. These measures are designed to enhance corporate governance, internal controls, training, and compliance."

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