Company executives are taking extreme measures to avoid penalties for securities fraud these days. The latest drama with Comverse, Inc., a telecom company whose management is accused of back-dating stock options, involved a global manhunt, money laundering through Israel, and Namibian real estate.

Comverse, a voicemail technology company (not to be confused with Converse, the maker of everyone’s favorite canvas high top) has been around since 1984. Starting out as a small shop operated by a son of the top guy at Israeli’s national oil company, and his Israeli engineer friend, the company now boasts $1.2B in revenues and over 5,000 employees. And the entrepreneurs Mr. Jacob (Kobi) Alexander and his buddy Mr. Kobi Kreinberg have been there from the beginning.

Seems like bliss to any techie hopeful. But, unfortunately, Mr. Alexander and Mr. Kreinberg weren’t quite satisfied.

They decided to stretch their luck a little further and try out the option game. The game of choice? Today’s white-collar crime favorite, BackDating Bonanza.

It is alleged that Alexander and Kreinberg created a slush fund of options from which they profited by over $171 million. Some were given to favored employees, others acted as paper piggy banks for the executives. An option is essentially a contract that, when signed today, allows a buyer to have the opportunity to buy or sell an asset at a given price. The key to the contracts is the uncertainty – an option to buy a stock at $10 tomorrow doesn’t really have much value if you know for sure that the stock will be worth only $5 tomorrow. What “backdating” does is that it essentially takes the information someone knows today and structure a contract that would have been favorable, had they signed it yesterday. Under the wrong circumstances, this is as crooked as it gets.

And for Alexander, Comverse paradise started to crack last spring. First there was an SEC inquiry, then an investigation followed suit. A couple of months went by, and word of criminal charges began floating around.

And suddenly, he vanished.

As of July 11 of this year, Alexander could not be reached. The house was vacated. The family gone.

Enough days went by that the police started searching for him, and then the search escalated into a full-out manhunt. Alexander and his family left the country. A spotting was made in Sri Lanka, in August, but for weeks there was silence.

Finally, a trail of large bank transactions led U.S. authorities’ focus to Namibia, the south African country recently made famous by Angelina Jolie’s recent adoption of a Namibian baby. Alexander, probably attracted to the large Israeli expat community in the country, had settled his family there, enrolled his children in an international school, and was even shopping for real estate. Namibian authorities, cooperating with the FBI, caught Mr. Alexander and had him arrested.

Who ever said accounting was boring?

Posted by Michelle Smith on October 4, 2006 10:33 PM