U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21428 / March 3, 2010
Accounting and Auditing Enforcement Release No. 3117 / March 3, 2010
Securities and Exchange Commission v. Verint Systems Inc., United States District Court for the Eastern District of New York, Civil Action No. 10-CV-0930-LDW-WDW (E.D.N.Y. March 3, 2010)
In the Matter of Verint Systems Inc.
SEC SUES VERINT FOR IMPROPER ACCOUNTING PRACTICES AND INSTITUTES EXCHANGE ACT SECTION 12(j) ADMINISTRATIVE PROCEEDINGS
The Securities and Exchange Commission today filed a civil action against Verint Systems Inc. ("Verint") alleging a fraudulent scheme involving certain improper accounting practices. The Complaint alleges the misconduct began as early as 1998, when Verint was a wholly-owned subsidiary of Comverse Technology, Inc. ("Comverse"), and continued after Verint became a publicly traded company, while still majority-owned by Comverse, in 2002. In addition, the Commission today instituted administrative proceedings against Verint to determine whether the registration of each class of its securities should be revoked or suspended for a period not exceeding twelve months for its failure to file required periodic reports for over four years.
In its settled Complaint, filed today in the United States District Court for the Eastern District of New York, the Commission alleges:
From 1998 through at least January 2003, Verint improperly established and maintained and/or released reserves as necessary to (i) meet its financial objectives, (ii) build a stockpile of reserves prior to becoming a public company for future earnings management purposes, and (iii) to ensure greater public demand and a better price for its follow-on offering in June 2003. These improper accounting practices did not conform to generally accepted accounting principles ("GAAP").
On May 16, 2002, Verint commenced its initial public offering ("IPO") of 4.5 million shares of common stock at a price of $16 per share. Its balance sheet held approximately $6.5 million excess reserves at the time. Its Form S-1 registration statement reported historical earnings and loss figures that had been materially altered by its historically improper reserve accounting. On June 13, 2003, Verint commenced a follow-on offering for 5 million shares of common stock at a price of $23 per share. Its Form S-3 registration statement reported materially misleading earnings and loss figures, including for the period after the IPO, as a result of its improper accounting for reserves.
In the two years subsequent to its follow-on offering, Verint overstated its pre-tax income and would not have met Wall Street analysts' consensus earnings estimates but for its improper reserve accounting.
The Complaint alleges that as a result of this misconduct, Verint's books and records falsely and inaccurately reflected, among other things, the Company's liabilities, expenses, net income, and general financial condition through at least the fiscal year ended January 31, 2005. The Complaint also alleges that Verint failed to maintain a system of internal accounting controls sufficient to provide assurances that its reserve activity was recorded as necessary to permit the proper preparation of financial statements in conformity with GAAP.
Without admitting or denying the allegations of the Commission's Complaint, Verint has consented to the entry of a final judgment permanently enjoining it from violating the antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws. Specifically, the proposed final judgment against Verint would permanently enjoin it from violating Section 17(a) of the Securities Act of 1933, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 13a-1 and 13a-13. In accepting the settlement offer, the Commission considered, among other things, Verint's remediation and cooperation in the Commission's investigation. The settlement is subject to the approval of the United States District Court for the Eastern District of New York.
Separately, the Commission today issued an Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934 against Verint, to determine whether the registration of each class of its securities should be revoked or suspended for a period not exceeding twelve months based on its failure to file required periodic reports. The Division of Enforcement alleges that Verint has failed to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder by failing to file an annual report on either Form 10-K or Form 10-KSB since April 25, 2005, or quarterly reports on either Form 10-Q or Form 10-QSB since December 12, 2005. A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations of the Division contained in the Order are true, and to provide Verint an opportunity to respond to these allegations.
For further information, see Litigation Release Nos. 19796 (August 9, 2006), 19878 (October 24, 2006), 19964 (January 10, 2007), 21090 (June 18, 2009), and 21091 (June 18, 2009).
See Also: SEC Complaint against Verint; Order Instituting Proceedings