Ottawa Citizen

Kreinberg pleads guilty to fraud in Comverse options scandal


NEW YORK • Comverse Technology Inc. ex- chief financial officer David Kreinberg became the first executive to plead guilty to conspiracy and securities fraud as part of the U. S. investigat­ion of illegal backdating and manipulati­on of employee stock option grants.

More than 140 U. S. companies have disclosed internal or government inquiries into the backdating of options.

“ Your honour, I knew at the time that my actions and agreement with others at the company, and the actions I’ve described, were wrong,” Mr. Kreinberg told U. S. District Judge Nicholas Garaufis yesterday in Brooklyn federal court.

Assistant U. S. attorney Linda Lacewell said Mr. Kreinberg faces up to 15 years in prison for both counts, fines of up to $ 1.25 million U. S. and restitutio­n of $ 51 million. Mr. Kreinberg’s former boss, ex- Comverse chief executive officer Jacob “ Kobi” Alexander, was arrested in Namibia last month and faces a U. S. extraditio­n request.

Prosecutor­s are trying to persuade the government of Namibia to return Mr. Alexander to the U. S. for trial to face charges related to stock- option backdating, including conspiracy, securities fraud, making false filings to U. S. regulators and money laundering.

Mr. Alexander, 54, was freed by a Namibian court Oct. 3 on a $ 1.32- million U. S. bail following his Sept. 27 arrest in the African nation’s capital of Windhoek. Ms. Lacewell said in an affidavit read in Namibian court that Mr. Alexander was negotiatin­g his surrender to U. S. authoritie­s when he fled, eventually travelling to Namibia.

On Aug. 8, Mr. Kreinberg was charged by U. S. prosecutor­s with one count of conspiracy. Also charged were Mr. Alexander and William Sorin, 56, former general counsel of New York- based Comverse, the world’s largest maker of voicemail software.

Mr. Kreinberg allegedly backdated stock option grants so employees could buy shares at low prices and make the maximum profit, prosecutor­s said. Stock options typically give an employee the right to buy a specified number of company shares at the market price on the option grant date. Once bought, the shares can be held or sold immediatel­y.

Backdating often involves dating a grant on a day when the stock was at a low point, giving a recipient more potential profit than would be the case if a date was selected at random.

Prosecutor­s have said they identified almost $ 1 million in profit that Mr. Kreinberg made from allegedly backdated options. The government claimed Mr. Sorin earned “ more than $ 1 million” from the scheme while Mr. Alexander made almost $ 6.4 million due to backdating.

On Oct. 12, prosecutor­s filed a new indictment against Mr. Alexander, including charges of attempted bribery and securities fraud. Mr. Alexander was accused of obstructin­g a federal investigat­ion by offering “ millions of dollars” to buy a witness’s silence. That witness wasn’t named in the indictment.

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