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Three former top executives at Woodbury-based Comverse Technology Inc., among them the company’s former top lawyer, have been charged with fraudulently manipulating the dates on stock options. In a complaint unsealed yesterday, the Eastern District U.S. Attorney’s Office alleges that Jacob “Kobi” Alexander, the former CEO of the company, a leading manufacturer of voicemail software, David Kreinberg, its former finance chief, and William Sorin, its former senior general counsel, violated federal law and Securities and Exchange Commission rules by conspiring to hide the backdating from shareholders and the investing public. “The defendants reaped substantial personal gain from their fraudulent conduct,” the complaint said. “Alexander exercised options and sold stocks worth approximately $150 million, of which approximately $138 million was profit.” Prosecutors attributed almost $6.4 million of that profit to backdating. Messrs. Kreinberg and Sorin surrendered yesterday, but Mr. Alexander’s whereabouts were unknown, and a warrant was issued for his arrest, said Robert Nardoza, an Eastern District spokesman. Each faces a maximum of five years in prison. The criminal charges are the first to be filed in New York and only the second nationwide relating to the brewing options backdating scandal. Last month, California prosecutors charged two former executives of Brocade Communications Systems Inc. of participating in a scheme to change the date of employee stock options to increase their value. It is also the first time an attorney has been accused of wrongdoing in connection with the backdating of stock options. Prosecutors say Mr. Sorin was Comverse’s general counsel from the company’s inception in 1986 and reported to Mr. Alexander. He was also the company’s corporate secretary and director, and was responsible for drafting Comverse’s stock option plans and public filings. He signed the company’s annual filings and submitted its proxy statements. Mr. Sorin, a graduate of Harvard Law School, has been a member of the New York bar since 1974. The SEC also filed a civil complaint against the three former Comverse executives yesterday. Both complaints accuse Messrs. Alexander, Kreinberg and Sorin of creating a slush fund to cover up their actions. A shareholder derivative action was filed in the Eastern District in April. The Department of Justice and the SEC are examining the actions of more than 80 companies suspected of being involved in questionable backdating practices. Messrs. Alexander, Kreinberg and Sorin are accused of making stock options more lucrative by backdating their exercise price to a low point in the stock’s value. Usually, a stock option’s exercise price matches the market value at the time of a grant, which gives the recipient an incentive to drive the price higher. “By backdating these options, the defendants, in effect, gave themselves and others an opportunity to place a bet in the middle of a race � a bet that paid off handsomely,” U.S. Attorney Roslynn Mauskopf of the Eastern District said in a statement. It is legal to backdate options when shareholders and regulators are informed, but prosecutors allege the trio broke the law by secretly backdating the grant documents. They also say the defendants issued false proxy statements and periodic public filings falsely claiming that the stock options were granted at fair market value. Alleged slush fund In addition to the backdating scheme, the complaint also alleges that Messrs. Alexander and Kreinberg generated hundreds of thousands of backdated options, which they parked in a secret slush fund to be used at Mr. Alexander’s discretion. To create the fund, the government said that Messrs. Alexander and Kreinberg inserted dozens of fictitious names into the list of option recipients submitted to the compensation committee of the Board of Directors. Once the committee approved these options, Messrs. Alexander and Kreinberg deposited the options in an account prosecutors allege was at one time named “Phantom.” Prosecutors also accused Mr. Alexander of transferring a total of approximately 88,000 options from the slush fund to another top executive. Although the options had a four-year vesting period, on each occasion Mr. Alexander made the options immediately exercisable, prosecutors claimed. He exercised the options the day after receiving them, when the stock was trading at nearly double the strike price, and sold the stock at a profit of $4 million. “The lying was the problem in this case,” said Dan Brecher, a solo practitioner in New York who specializes in securities law but is not involved with the case. “It’s akin to tampering with corporate records or documents.” Comverse announced in a May press release that Messrs. Alexander, Kreinberg and Sorin had resigned their posts in the midst of an internal investigation by a special committee of the company’s board. Messrs. Kreinberg and Sorin were arraigned yesterday before Magistrate Judge Viktor V. Pohorelsky, and were each released on a $1 million bond. Mr. Alexander’s whereabouts were unknown as of yesterday. The government has seized $45 million from two investment accounts held in his name, fearing he would bury the money in accounts oversees. Mr. Alexander’s attorneys, Keith Krakaur, a partner at Skadden, Arps, Slate, Meagher & Flom, and Robert Morvillo, a partner at Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, declined to comment on the case. Andrew J. Levander, a partner at Dechert who represents Mr. Kreinberg, declined to comment on the case, as did Lewis Clayton, a white-collar crime specialist at Paul, Weiss, Rifkind, Wharton & Garrison who represents Mr. Sorin. The government’s case is being prosecuted by Assistant U.S. Attorneys Ilene Jaroslaw, Linda Lacewell, Sean Casey and Kathleen Nandan. Representatives from Comverse were unavailable for comment. Beth Bar can be reached at [email protected]

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