Ex-Comverse executives charged in US options probe

WASHINGTON - Two former officers of Comverse Technology surrendered to FBI agents today, as authorities charged them and the software group's former chief executive with criminal fraud in a widening US investigation of corporate stock option manipulation.

With more than 80 probes under way at dozens of companies, former Comverse finance chief David Kreinberg and former senior general counsel William Sorin surrendered and appeared in court in New York. Both were released, each on a US$1 million ($1.6 million) bond.

An arrest warrant was issued for Comverse co-founder and former CEO Jacob "Kobi" Alexander, said US Deputy Attorney General Paul McNulty at a news conference.

McNulty would not comment on the whereabouts of Alexander, a citizen of both the United States and Israel. "We are in the process of getting ahold of Mr Alexander," McNulty said.

The Justice Department said it has seized more than US$45 million from two investment accounts in Alexander's name and alleges the ex-Comverse CEO was involved in recent months in "a money laundering scheme involving the secret transfer of more than US$57 million to accounts in Israel."

The Comverse case is the second leading to charges from a wide-ranging government inquiry into backdating and other abuses of stock options that appeared to have occurred during and after the late 1990s technology and telecommunications stock bubble.

The Comverse defendants, the government alleged, from 1998 to 2002 reaped millions of dollars in profits by altering the grant dates of stock option awards to boost gains available to themselves and favored employees.

The Justice Department said Alexander and Kreinberg used fake names "to generate hundreds of thousands of backdated options, which they then parked in a secret slush fund designed to evade the requirements of Comverse's stock option plans."

The US Securities and Exchange Commission said it had filed civil fraud charges against the three former executives.

Attorneys for Kreinberg and Sorin refused to comment as they and their clients left the federal court in New York. A lawyer for Alexander could not be reached for comment.

Last month, authorities brought their first options manipulation case against three former officers of high tech group Brocade Communications Systems Inc..

The Brocade and Comverse cases are likely to be followed by many more centering on options misconduct, according to people familiar with the multi-agency investigation.

Federal Bureau of Investigation Acting Assistant Director James Burrus said at the news conference that more than 260 FBI agents are working hundreds of corporate fraud cases, including "45 instances of backdated stock options, the newest trend in investor fleecing."

The US Internal Revenue Service is investigating as many as 40 companies over options misconduct. McNulty said the IRS would be involved in the Comverse case, as well.

All three former Comverse officers quit in May after the company said it was investigating past stock option grants.

Comverse stock closed 15 cents lower at US$19.37 a share on the Nasdaq market.

A stock option holder has the right to buy shares in the future at a fixed strike price, normally set as the market price of the shares on the date the option is granted.

At issue is backdating in which options are awarded on one date, but the grant date is recorded earlier to precede a rally in the shares, locking in profits for the option recipient.

Also under scrutiny is spring-loading, where grant dates are set in advance of a positive announcement and bullet-dodging where the dates are set to follow a negative announcement. In both cases, the dates are set to anticipate a share price rally and lock in option recipient profits.

The practices are not illegal, but can run afoul of the law if not properly disclosed, taxed and accounted for.

The excesses of the stock bubble have damaged corporate America's reputation in a run of scandals starting five years ago with the implosion of energy trader Enron Corp.

A federal task force formed in mid-2002 in response to the scandals has won more than 1000 corporate fraud convictions, including convictions of more than 100 corporate CEOs and presidents, the Justice Department said.

- REUTERS