U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19796 / August 9, 2006

Accounting and Auditing Release No. 2472 / August 9, 2006

Securities and Exchange Commission v. Jacob ("Kobi") Alexander, David Kreinberg, and William F. Sorin, United States District Court for the Eastern District of New York, Civil Action No. 06-CV-3844 (GJ) (E.D.N.Y. August 9, 2006)

SEC Charges Former Comverse Technology, Inc. CEO, CFO, and General Counsel in Stock Option Backdating Scheme

On August 9, 2006, the Securities and Exchange Commission ("Commission") filed a civil injunctive action in the United States District Court for the Eastern District of New York against Jacob "Kobi" Alexander, the co-founder and former Chairman and Chief Executive Officer of Comverse Technology, Inc. ("Comverse"), David Kreinberg, Comverse's former Chief Financial Officer, and William F. Sorin, Comverse's former General and Senior General Counsel, and a former Comverse director, alleging that they engaged in a decade-long 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. In addition, the Complaint alleges that Alexander and Kreinberg 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 Complaint alleges that as part of the scheme, the former executives made material misrepresentations to Comverse investors regarding Comverse's stock option grants and concealed from investors that Comverse had not recorded compensation expenses for option grants. As a result, Comverse materially overstated its net income and earnings per share between 1991 and at least 2002.

According to the Complaint, the former executives collectively realized millions of dollars of ill-gotten compensation through the exercise of illegally backdated option grants and the subsequent sale of Comverse common stock.

The complaint alleges, among other things, that:

Comverse is a maker of software, systems, and related services for multimedia communication and information processing applications headquartered in New York, New York.

Beginning in 1991, Alexander, 54, of New York, New York, repeatedly used hindsight to select a date when the closing price of Comverse's common stock was at or near a quarterly or annual low. Alexander later communicated this date and closing price to Sorin, 56, of New York, New York, in order for it to be used as the date of, and exercise price for, a grant of Comverse options. Sorin, with Alexander's knowledge, then created company records that falsely indicated that a committee of Comverse's board of directors had actually approved the option grant on the date Alexander had "cherry-picked" when, in fact, the committee acted to make the grant on a different, and later, date. Kreinberg, 41, of Teaneck, New Jersey, joined the scheme no later than 1998, and assisted Alexander in using hindsight to select a backdated grant date. Kreinberg knew that company records reflected false grant dates.

Alexander and Kreinberg also created a slush fund of backdated Comverse options between 1999 and 2002 by, among other things, secretly inserting fictitious names among the names of actual Comverse employees on proposed option grantee lists which then were submitted to a committee of Comverse's board of directors for approval. Once the committee approved these options, Alexander, with Kreinberg's knowledge, used the slush fund's backdated options to recruit and retain key personnel until at least 2002.

Kreinberg instructed a Comverse employee to conceal the existence of the slush fund from Comverse's auditors and in March 2006, after learning that a special committee of Comverse's board would investigate the company's option grants, Kreinberg undertook to hide the existence of the slush fund by altering records in Comverse's electronic option-tracking system. Alexander, Kreinberg, and Sorin also made misrepresentations to Comverse's auditors in order to conceal the backdating scheme.

As a result of the scheme, Alexander, Kreinberg, and Sorin received undisclosed, in-the-money options which had an immediate intrinsic gain because the exercise price of the option was lower than the market price of the underlying common stock on the date of the grant. Alexander realized actual gains of nearly $138 million from sales of stock underlying the exercises of backdated options that were granted during the 1991 to 2001 period. At least $6.4 million of this gain represents the in-the-money portion of the options at the time of the grant to Alexander. Kreinberg realized an actual gain of nearly $13 million from the sales of stock underlying the exercises of backdated options granted during the 1994 to 2001 period, with at least $1 million of this gain representing the in-the-money portion of the options at the time of the grant to Kreinberg. Sorin realized an actual gain of more than $14 million from the sales of stock underlying the exercises of backdated options granted during the 1991 to 2001 period, with approximately $1 million of this gain representing the in-the-money portion of the options at the time of the grant to Sorin.

From fiscal year 2001 to 2002, Kreinberg, with Sorin's knowledge, initiated a similar backdating scheme at Ulticom, Inc., a publicly-traded, majority-owned subsidiary of Comverse.

Comverse and Ulticom have publicly announced that they expect to restate their historical financial results for multiple years in order to record additional, material non-cash charges for option-related compensation expenses.

The Complaint charges the defendants with fraud and other violations of the federal securities laws, including the books and records, internal controls, lying to auditors and, as to Alexander and Kreinberg, the Sarbanes-Oxley certification provisions. The Commission is seeking permanent injunctions, officer and director bars, disgorgement with prejudgment interest, and civil money penalties.

The Commission's investigation in this matter is continuing.

SEC Complaint in this matter