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NEW YORK � The stock option backdating scandal is rapidly turning into the problem of the year for general counsel. In July, William Sorin became the first corporate legal chief to be criminally charged for suspicious option grants. Sorin was the outside GC of Comverse Technology Inc. for more than 20 years. He left the software manufacturer this past May. Brooklyn-based federal prosecutors filed a criminal complaint and affidavit charging Sorin, former Comverse CEO Jacob Alexander, and ex-CFO David Kreinberg with conspiracy to commit securities, wire and mail fraud. The defendants face a maximum five-year jail term if convicted. Sorin and Kreinberg were arraigned in federal district court in Brooklyn in August, but Alexander failed to appear. According to the affidavit, the Comverse executives developed a scheme to backdate millions of dollars in stock options for themselves and other employees. In fact, every companywide grant between 1998 and 2001 was allegedly backdated. Originally based in New York, Comverse is now headquartered in Wakefield, Mass. “It seems like a pretty straightforward case,” says Peter Henning, a former lawyer in the enforcement division of the Securities and Exchange Commission and in the criminal division of the U.S. Department of Justice. “The government is going to look at what the general counsel did, because ultimately that’s the GC’s role � to keep track of the records,” says Henning, currently a law professor at Wayne State University. Sorin’s attorney, James Brochin of Paul, Weiss, Rifkind, Wharton & Garrison, was on vacation at press time and could not be reached for comment. Sean Casey, a prosecutor in the U.S. attorney’s office in Brooklyn who is working on the case, declined to comment. Comverse spokesperson Paul Baker says that Sorin “billed [the company], as opposed to being on salary.” Sorin, 56, first served as Comverse’s general counsel and then as its senior GC. He had a private practice in New York, but Baker would not comment further on his work. The outside GC arrangement is unique, says Rees Morrison, an attorney and law department consultant for Somerset, N.J.- based Hildebrandt International Inc. While the practice used to be more common at small companies in the ’80s, Morrison says that it’s a rarity today. According to the government’s affidavit, Sorin exercised options and sold stock worth about $17 million between 1991 and 1999. He allegedly made $14 million in profits, about $1 million of which was due to backdating. The government says that during his tenure at Comverse, Sorin was awarded some 434,500 options. In Morrison’s view, there was a clear conflict of interest in giving company stock to an outside GC. Even during the tech boom of the 1990s, when companies were awarding stock options to their outside counsel, Morrison says that the grants “were going to the firm, not the attorneys.” In addition to the government’s criminal charges, the SEC has filed a civil suit against Sorin, Alexander and Kreinberg alleging securities violations. The agency’s complaint states that “Sorin, at all relevant times, interfaced with the [Comverse] compensation committee and played a critical role in the [backdating] scheme by drafting grant documents with false grant dates and obtaining the committee’s approval.” The Comverse backdating case is the second to lead to government charges. In July, prosecutors and the SEC brought criminal and civil actions against executives of San Jose-based Brocade Communications Systems Inc. And more charges could be in the works. In August a federal grand jury subpoenaed McAfee Inc., after the Santa Clara-based company fired GC Kent Roberts over problematic option grants. Jill Nawrocki is a reporter with Corporate Counsel, a Recorder affiliate based in New York.

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