by Marcelo Prince
Amdocs Ltd. (DOX) has come under fire for its executives' ties to an offshore entity that has sold millions of the software company's shares over the years.
The offshore entity, Toes Corporation Ltd., which is owned by an Amdocs employee trust, has sold more than $150 million worth of Amdocs shares since December 1999, a review of documents filed with the Securities & Exchange Commission shows.
Two pending shareholder lawsuits contend that Amdocs' top executives are beneficiaries of the trust and used Toes to hide their insider sales. Amdocs shares, which soared in 1999 and 2000, have fallen about 70% since Toes began selling its stake.
One complaint, filed by investor Hindy Taub in New York, alleges Amdocs and its executives "misled the market to believe that Toes Corporation was merely an unaffiliated shareholder." Taub's lawyer declined to comment.
An Amdocs spokesman declined to comment on the lawsuits, which have been combined with other class-action suits in U.S. District Court in Missouri. Judge Henry Autrey is in the process of selecting a lead plaintiff.
The spokesman said Amdocs' SEC filings are "as complete as they should be." The company has discussed an "employee trust" in several of its SEC filings and disclosed that three unnamed executives are beneficiaries of the trust. But it won't identify the executives involved or reveal how many beneficiaries Toes has.
Toes has regularly filed documents with the SEC to register its Amdocs shares for sale, but hasn't disclosed its beneficiaries. In most of its filings, Toes describes itself simply as an Amdocs shareholder. Walbrook Trustees Ltd., which manages the trust, didn't respond to a request for comment.
The Amdocs spokesman said the offshore trust is a "personal compensation issue" and the names of its beneficiaries are not public information.
Details about Amdocs executives' stock ownership and the employee trust are hard to come by. Both are registered in the Channel Islands, a British tax haven, and subject to looser standards than their U.S. counterparts. For example, Amdocs doesn't report the number of shares owned by its executives and directors on an individual basis. Instead, it reports the aggregate number of shares owned by insiders.
According to a footnote in a June 7, 1999, SEC filing, Toes is owned by a trust that was established in September 1997 "for the benefit of a group of employees, primarily software and information technology specialists. The beneficiaries include three executive officers of our operating subsidiaries."
”An offshore trust can be a legal way to avoid certain taxes, said Judith Fischer, managing director of Executive Compensation Services, an Alexandria, Va., consulting firm. But "because so little is known about these situations they have taken on a rather sinister or shady aspect in the eyes of shareholders," she said.
Amdocs, which has more than 8,500 employees, is an Israeli company with its principal U.S. offices in St. Louis. It was founded in 1982 and sells customer care and billing software to telecommunications companies. The shareholder suits were filed after the company warned June 20 that profit and sales would fall short of estimates in the June and September quarters.
Some investors and brokerage analysts said Amdocs has adequately disclosed its ties to Toes. They said it's widely known that Toes is a blind trust that has been systematically selling shares for Amdocs' insiders.
"I don't think it's a red flag," said Imran Khan, a software analyst at Fulcrum Global Partners. He believes Toes has 50 to 55 beneficiaries and will be winding down its Amdocs sales next year since it appears to have already sold much of its stake. Khan rates Amdocs at neutral and doesn't own the stock.
Other investors, including a mutual fund manager and hedge fund analyst that both own Amdocs, and a software analyst that covers Amdocs for a Wall Street bank, said they hadn't heard of Toes.
Amdocs gave $25.8 million to Toes in September 1997, according to SEC documents. The trust used the money and other funds to buy 5.72 million Amdocs shares for about $5.50 apiece. Nine months later, in June 1998, Amdocs went public on the New York Stock Exchange at a price of $14. The stock, which soared as high as $96 in 2000, was recently at $10.
The offshore trust's purpose was to sell its Amdocs stake over five years and distribute the cash to the beneficiaries at regular intervals. Toes is run by Walbrook Trustees of the Channel Islands, the offshore business of Deloitte & Touche.
There are some lingering questions. According to Amdocs, the employee trust was established in 1997. But some of Toes stake in Amdocs was purchased in September 1995, according to filings made by Toes.
Also, the trust's five-year anniversary has come and gone, but Toes is still busy selling Amdocs shares. According to filing dated Dec. 2, it sold about 600,000 shares last month collecting gross proceeds of more than $6.4 million.
Copyright © 2002, Dow Jones Newswires
Published by Globes [online] - www.globes.co.il - on December 15, 2002