SEC, Former Comverse CEO Settle Back-Dating Charges

According to the SEC, Alexander agreed to a $53.6 million settlement of SEC charges against him in Comverse’s long-running options backdating scheme. He also will be barred permanently from serving as an officer or director of a public company. 

Alexander, who was Comverse’s former Chairman and CEO, agreed to a settlement of more than $47.6 million in disgorgement and prejudgment interest — which the SEC alleges constituted Alexander’s ill-gotten gains. He also will pay a $6 million penalty. According to the SEC, the proposed settlement marks one of the largest disgorgement and penalty amounts imposed against an individual in a stock options backdating case.

“This successfully concludes one of our earliest stock option backdating cases and one of the most egregious attempts to cover up and avoid responsibility for options backdating fraud,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement, in announcing the settlement. “Executives who mislead investors about their personal compensation and the company’s compensation expenses will be held accountable for their misconduct.”

The Charges

The SEC charged Alexander and two other former Comverse executives in 2006 with engaging in a fraudulent scheme to grant undisclosed in-the-money options to themselves and to others by backdating stock option grants to coincide with historically-low closing prices of Comverse common stock. The SEC alleged that Alexander also created a slush fund of backdated options by causing options to be granted to fictitious employees, and later used these options, some of which were made immediately exercisable, to recruit and retain key personnel.  

The SEC’s complaint alleged that Alexander made material misrepresentations to Comverse investors regarding Comverse’s stock option grants and concealed from investors that Comverse had not recorded compensation expenses for the grants. The SEC also alleged that Comverse materially overstated its net income and earnings per share for more than a decade as a result of the options backdating scheme. According to the SEC’s complaint, the scheme commenced in 1991 and affected Comverse’s reported financials through 2005.

Last December Comverse Technology agreed to pay $225 million to settle a securities class action over those backdated stock options (see Comverse Agrees to Settlement of Stock Options Backdating Charges).

Other Executives Charged

The other two Comverse executives charged by the SEC settled their cases in late 2006 and early 2007. Shortly before the SEC filed its complaint in court, Alexander reportedly fled to Namibia, where he currently resides and is fighting extradition to the United States to face criminal charges.

That said, without admitting or denying the SEC’s allegations, the SEC said that Alexander has consented to the entry of a final judgment permanently enjoining him from violating and/or aiding and abetting violations of the antifraud, reporting, record-keeping, internal controls, false statements to auditors, and securities ownership-reporting provisions of the federal securities laws, permanently barring him from serving as an officer or director of a public company, and ordering him to pay disgorgement, prejudgment interest, and a civil penalty.

The proposed final judgment is subject to the approval of the Honorable Nicholas G. Garaufis, U.S. District Judge for the Eastern District of New York. The SEC noted that, separately, the U.S. Attorney’s Office for the Eastern District of New York has filed a stipulation of settlement of their civil forfeiture action against certain of Alexander’s assets. Alexander’s disgorgement and prejudgment interest obligations in the SEC’s action will be deemed satisfied by the entry of a forfeiture order in the U.S. Attorney’s action.