February 11, 2009 6:09 PM
- Text
3 Ex-Software Execs Charged With Fraud
(AP)
Three former top executives at Comverse Technology Inc., a leading maker of voicemail software, contrived to pocket millions of dollars by secretly manipulating stock options, authorities charged Wednesday.
A criminal complaint unsealed in federal court in Brooklyn alleges that former CEO Kobi Alexander, former finance chief David Kreinberg and former senior general counsel William Sorin conspired to falsify dates on which the options were granted.
Kreinberg, 41, of Teaneck, N.J., and Sorin, 56, of New York, surrendered Wednesday morning to the FBI, authorities said. The whereabouts of Alexander, 54, was unknown.
The government seized $45 million from two investment accounts held in Alexander's name. Authorities alleged that the ex-CEO had plotted to hide tens of millions of dollars in other accounts in Israel.
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.
Backdating affects more than just people working on Wall Street, reports CBS News correspondent John Blackstone.
Larry Bock, a parks worker in Pittsburgh, found out that one of the companies his pension plan invested in, Monster.com, is among dozens of companies that are being investigated for allegedly backdating stock options. The pension board president believes that enriched company executives at investors' expense.
"It's disappointing," Bock told Blackstone. "You like to think that people that have your money — you trusted in them to do the best with it — and not take it off the top."
At Comverse, during the period of 1991 through 2005, Alexander exercised options and sold stocks worth approximately $150 million, making $138 million in profits, according to the criminal complaint. Of that, about $6.4 million was generated by backdating options.
In addition, Alexander and Kreinberg allegedly put hundreds of thousands of backdated options in a secret slush fund, the complaint said. Alexander awarded those options to "favored employees," the papers added.
A call to Alexander's lawyer, Robert Morvillo, was not immediately returned.
An arraignment was scheduled for Wednesday afternoon in Brooklyn.
Kreinberg falsified documents to hide the slush fund from an outside auditor, the complaint said.
The Securities and Exchange Commission filed related civil charges on Wednesday against Alexander, Kreinberg and Sorin, seeking restitution of allegedly ill-gotten gains and compensation, unspecified civil fines, and a ban against them serving as an officer or director of any public company.
More than 80 companies are under federal investigation by the Justice Department, 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 U.S. Justice Department has already brought criminal charges against Brocade Communications Systems Inc.'s former CEO, Gregory Reyes, and is actively investigating other cases. Reyes is free on a $2 million bond.
A criminal complaint unsealed in federal court in Brooklyn alleges that former CEO Kobi Alexander, former finance chief David Kreinberg and former senior general counsel William Sorin conspired to falsify dates on which the options were granted.
Kreinberg, 41, of Teaneck, N.J., and Sorin, 56, of New York, surrendered Wednesday morning to the FBI, authorities said. The whereabouts of Alexander, 54, was unknown.
The government seized $45 million from two investment accounts held in Alexander's name. Authorities alleged that the ex-CEO had plotted to hide tens of millions of dollars in other accounts in Israel.
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.
Backdating affects more than just people working on Wall Street, reports CBS News correspondent John Blackstone.
Larry Bock, a parks worker in Pittsburgh, found out that one of the companies his pension plan invested in, Monster.com, is among dozens of companies that are being investigated for allegedly backdating stock options. The pension board president believes that enriched company executives at investors' expense.
"It's disappointing," Bock told Blackstone. "You like to think that people that have your money — you trusted in them to do the best with it — and not take it off the top."
At Comverse, during the period of 1991 through 2005, Alexander exercised options and sold stocks worth approximately $150 million, making $138 million in profits, according to the criminal complaint. Of that, about $6.4 million was generated by backdating options.
In addition, Alexander and Kreinberg allegedly put hundreds of thousands of backdated options in a secret slush fund, the complaint said. Alexander awarded those options to "favored employees," the papers added.
A call to Alexander's lawyer, Robert Morvillo, was not immediately returned.
An arraignment was scheduled for Wednesday afternoon in Brooklyn.
Kreinberg falsified documents to hide the slush fund from an outside auditor, the complaint said.
The Securities and Exchange Commission filed related civil charges on Wednesday against Alexander, Kreinberg and Sorin, seeking restitution of allegedly ill-gotten gains and compensation, unspecified civil fines, and a ban against them serving as an officer or director of any public company.
More than 80 companies are under federal investigation by the Justice Department, 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 U.S. Justice Department has already brought criminal charges against Brocade Communications Systems Inc.'s former CEO, Gregory Reyes, and is actively investigating other cases. Reyes is free on a $2 million bond.
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