When the FBI Comes Calling…®
Sep. 27, 2006
By Allan Dodds Frank and Bob Van Voris
Former Comverse Chief Alexander Arrested in Namibia
Sept. 27 (Bloomberg) -- Jacob ``Kobi'' Alexander, the former Comverse Technology Inc. chief executive officer who became a fugitive after being charged with securities fraud, was arrested today in Namibia.
Alexander, the ex-Israeli intelligence officer turned high- technology entrepreneur, will be brought before a court in Windhoek within 48 hours, and the U.S. will seek his extradition, the Justice Department said.
Federal prosecutors charged Alexander, 54, on Aug. 9 with backdating stock options to boost the compensation of executives at New York-based Comverse, the world's largest maker of voicemail software. He is the second CEO charged in the government's probe of illegal stock-option backdating, the largest investigation of corporate wrongdoing since a mutual fund trading scandal three years ago led to $4.3 billion in penalties.
``Alexander's alleged role in options backdating victimized Comverse shareholders and deceived prospective investors,'' Brooklyn U.S. Attorney Roslynn Mauskopf said today in a statement. ``The fraud affected the company's bottom line by misstating earnings.''
The wizard of Israel's technology boom, Alexander was arrested by Interpol and local police on a Namibian warrant issued at the request of the U.S., said Ray Castillo, a spokesman for the U.S. embassy in Namibia.
Sought Out by Zemin
Namibia amended its laws governing extradition effective today to allow the rendering of fugitives to the U.S., according to a letter from Mauskopf's office filed in Brooklyn federal court.
As CEO of Comverse, Alexander was sought out by the likes of former Chinese President Jiang Zemin, who slipped away from official meetings in 2000 and steered his motorcade through a pot-holed section of Tel Aviv to meet with him.
The probe of backdating at Comverse has triggered the widest-ranging fraud charges to date from the more than 130 inquiries launched by regulators, prosecutors or companies into stock-options timing. Options backdating, used to reward employees with shares granted at below-market prices, has so far cost investors at least $7.9 billion in market value, according to Bloomberg data.
Alexander's former subordinates, David Kreinberg, Comverse's ex-chief financial officer, and William Sorin, a former general counsel, were also charged last month and released on $1 million bail each. The three were charged in a criminal complaint July 31 of changing the dates on millions of Comverse stock options so employees, including themselves, could buy shares at low prices. Kreinberg and Sorin pleaded not guilty.
Most Wanted List
Prosecutors have until Oct. 9 to seek an indictment of Kreinberg, 41, and Sorin, 56. Linda Lacewell, an Assistant U.S. Attorney in Brooklyn, told U.S. District Judge Nicholas Garaufis that her office was in talks to see if Kreinberg, 41, and Sorin, 56, might agree to plead guilty.
Kreinberg's lawyer Matthew Lang declined to comment. Lewis Clayton, an attorney for Sorin, didn't immediately return a call seeking comment.
Since Alexander was first charged, the FBI has put his face on its Most Wanted list and Interpol has sent out a global ``red notice,'' asking police to arrest the former CEO. Prosecutors said today that Alexander isn't a U.S. citizen as the FBI stated in a press release after he was first charged. Robert Nardoza, a spokesman for Mauskopf, said the former CEO, a citizen of Israel, is also a permanent resident of the U.S.
Alexander wired $57 million to Israel in July from an account at Citigroup Inc.'s Smith Barney Unit, the U.S. government said, calling the transfer an effort to ``launder the proceeds of the fraud.'' His assets in two Citigroup Smith Barney accounts were frozen July 31.
32-Count Indictment
A 32-count indictment unsealed today by Garaufis in Brooklyn federal court charged Alexander with crimes relating to an alleged ``slush fund'' and the backdating of stock options from 1998 to 2006. He is charged with conspiracy, securities fraud, making false filings with the U.S. Securities and Exchange Commission, mail fraud, wire fraud and money laundering.
If found guilty of the charges, Alexander may be sentenced to up to 25 years in prison, according to Mauskopf's statement.
Alexander's attorney, Robert Morvillo, said he hasn't been in touch with his client since the government notified him of the arrest. He wouldn't say when he last had contact with Alexander.
``There's nothing we can do until he gets back here, and then we'll see what happens,'' said Morvillo, a New York lawyer who defended homemaking maven Martha Stewart, founder of Martha Stewart Living Omnimedia Inc. She was convicted in 2004 of obstruction of justice after a trial in Manhattan federal court.
Extradition Treaty
The U.S. and Namibia don't have an extradition treaty, said attorney Douglas McNabb, a Washington-based extradition law expert. Namibia has a statute that permits the rendering of fugitives to a designated list of countries, which Namibia amended today to include the U.S.
``It allows Mr. Alexander to be detained under a provisional arrest warrant and gives the U.S. an opportunity to fully prepare a petition for extradition,'' said McNabb, who appeared as an expert witness for the defense in the extradition of three U.K. bankers to the U.S. to face charges stemming from the collapse of Enron Corp. They are now in Houston awaiting trial.
Alexander's lack of U.S. citizenship will have no effect on extradition, McNabb said. Pahukeni Titus, the first secretary of the Namibian embassy in Washington, didn't return a call seeking comment. Bryan Sierra, a Justice Department spokesman in Washington, declined to comment.
South Africa Deal
Windhoek is the capital of Namibia, located on the southwestern coast of Africa. The country was controlled by South Africa until 1990, when it won its independence, according to the U.S. Central Intelligence Agency's Web site. One-fifth of the country's economy is dependent on mining, including diamonds and uranium, according to the CIA.
Comverse has an office in Bryanston, South Africa, a suburb of Johannesburg, according to the company's Web site. In 2004, it announced a voicemail software deal with Vodacom Group, South Africa's No. 1 provider of cell phone service.
``The U.S. will submit a formal request for his extradition and that request will be considered by the Namibian courts,'' said Janelle Hironimus, a spokeswoman for the U.S. Department of State.
James Matengu, a spokesman for the Namibian police, declined to comment. Interpol didn't return an e-mail seeking comment.
Fortunes Soared
Comverse's fortunes soared during the late 1990s with growing sales of cellular phones which use the company's voicemail software. The stock rose from a low of $9.98 on Oct. 8, 1998, to $121.63 on Jan. 24, 2001.
Comverse has yet to file complete financial reports for the year ended Jan. 31 and the first-quarter ended April 30, having requested more time to review the alleged manipulation of stock options by Alexander and the other executives.
The Nasdaq Listing and Hearing Review Council last week gave the company until Oct. 13 to submit additional information.
Paul Baker, a spokesman for Comverse, declined to comment.
Comverse's shares rose 16 cents to $21.67 in Nasdaq composite trading.
Alexander's indictment followed that of former Brocade Communications Systems Inc. Chief Executive Officer Gregory Reyes, who last month pleaded innocent to 12 counts of securities fraud and other charges that he improperly backdated options at the San Jose-based company, the world's largest maker of switches for storage networks.