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Three former Comverse execs charged

/ Source: The Associated Press

Three former top executives for leading voicemail software maker Comverse Technology Inc. — including one who may have fled the country with nearly $60 million — hatched a scheme to secretly manipulate stock options for profit, authorities charged Wednesday.

A criminal complaint unsealed in federal court in Brooklyn alleges that former Chief Executive Kobi Alexander, former finance chief David Kreinberg and former senior general counsel William Sorin conspired to falsify dates on which the options were granted by the company.

Kreinberg, 41, of Teaneck, N.J., and Sorin, 56, of New York, surrendered Wednesday morning to the FBI, authorities said. They were released on $1 million bond each and left the courthouse without speaking to reporters. Alexander, 54, was not in custody.

Authorities said Alexander, a dual citizen of the United States and Israel, in recent months transferred $57 million to Israel, fueling speculation he may have fled there.

Officials refused to discuss his whereabouts. A telephone call to his attorney, Robert Morvillo, was not immediately returned Wednesday.

Besides filing criminal charges, authorities also “initiated action to freeze bank accounts worth $45 million used to launder the proceeds of the scheme” and “initiated forfeiture proceedings,” Deputy Attorney General Paul J. McNulty said at a Washington, D.C., news conference.

The defendants were accused of making stock options more lucrative by backdating their exercise price to a low point in the stock’s value. Usually, a stock option’s exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher.

“By backdating these options, the defendants, in effect, gave themselves and others an opportunity to place a bet in the middle of a race — a bet that paid off handsomely,” U.S. Attorney Roslynn Mauskopf said in a statement.

From 1991 through 2005, Alexander exercised options and sold stocks worth approximately $150 million, making $138 million profit, according to the criminal complaint. Of that, about $6.4 million was generated by backdating options.

In addition, the company put hundreds of thousands of backdated options in a secret slush fund concealed with false documents prepared by Kreinberg, the complaint said. Alexander awarded those options to “favored employees,” the papers added.

The Securities and Exchange Commission filed related civil charges on Wednesday against Alexander, Kreinberg and Sorin, seeking restitution of ill-gotten gains and compensation, unspecified civil fines and a ban against them serving as officers or directors of any public company.

More than 80 companies are under federal investigation by the Department of Justice, the SEC or both, or have started internal reviews of possible manipulation of options grants to increase their value to the recipients.

“Shareholders have a right to full, complete and accurate information regarding executive compensation,” said SEC Enforcement Director Linda Thomsen. “As alleged, the backdated option grants and secret option slush fund was a deceit of the highest order upon Comverse Technology Inc.’s shareholders.”

If companies backdate options without accounting for the move, it can cause profits to be overstated and taxes to be underpaid. The financial manipulation also exposes companies to possible fraud charges.

The Department of Justice has already brought criminal charges against Brocade Communications Systems Inc.’s former CEO, Gregory Reyes, and is investigating other cases. Reyes is free on a $2 million bond.

More than 20 of the companies entangled in the stock option imbroglio are in Silicon Valley, where the incentives first became a staple of compensation packages for rank-and-file employees as well as top executives.