The Israel prison service today granted the request of Comverse founder and former CEO Kobi Alexander to early release. He has now been released from prison after having been sentenced in the US to 30 months in prison in February 2017. He began serving the sentence in 2016 in the US after agreeing a plea bargain and voluntarily returning to New York from Namibia. He landed on Israel on March 1 in order to continue serving his sentence in Israel.
Alexander is now on probation and must report to the authorities every two weeks. He will work as a volunteer four days a week for the Israel Nature and Parks Authority and will not be allowed to travel abroad until April 2019.
In the backdating affair in which Alexander was convicted, Comverse was one of over 100 companies that fraudulently changed the date on which options were granted in order to make huge profits.
Alexander’s offenses were committed over a decade ago. The term "backdating" entered economic media jargon in 2006, when it was revealed that the retrospective changing of allocation dates for options granted to executives and employees of public companies to dates on which the companies’ share prices were at a low point had become a widespread practice in the 1990s.
The practice was prevalent mainly among high-tech companies, which customarily gave their executives and employees remuneration in the form of generous allocations of options. The main reason for the practice was the desire of executives to reduce the strike prices of the options in order to given themselves and their employees a larger profit when the options were actually exercised.
This practice, however, is banned for two main reasons. The first is that it gives managers and employees an unapproved and unreported discount on the purchase of shares in the company in which they are employed, thereby damaging the company and its shareholders. The second reason is that the companies that did this did not record expenses for the remuneration in options, although they were obliged to do so in retrospect.
Accounting rules in the US at the time stated that expenses for options had to be recorded only when they were in the money, meaning that the strike price was lower than the share price. When these companies distributed options with an exercise price equal to the market price, they posted no expenses for the options, although they should have done so, because when the decision to actually distribute the options was made, they were in the money.
As far as is known, over 100 public companies in the US were investigated for or accused of backdating options; Comverse was not unusual in this practice, but apparently did it on an exceptionally large scale.
For this reason, among others, three company executives eventually went to prison: CFO David Kreinberg and senior legal counsel William Sorin, who quickly confessed and served one-year terms, and chairperson and CEO Kobi Alexander, who fled to Namibia.
A story published in "The New York Times" five years ago stated, that although the federal prosecutors in the US had spent a great deal of time and money on the cases against managers suspected of backdating, the results were unimpressive. Only about a dozen executives were convicted, and only five of them served prison terms. Alexander, who was imprisoned only in 2016, can be added to this list.
Alexander fled from the US to Namibia in southwest Africa, which has no extradition treaty with the US, 11 years ago. After being discovered in Namibia and following an extradition proceeding, he turned himself in to the US authorities 20 months ago. He was convicted of falsifying corporate documents and sentenced to a 30-month prison term. As a prisoner in Israel, Alexander was able to ask for release from prison with one third of his sentence left to serve, as opposed to 15% in the US. Last November, Minister of Justice Ayelet Shaked approved Alexander’s request for early release, and he has now been released.
Alexander was represented by Advocates Prof. David Libai and Shani Illouz.
Published by Globes [online], Israel business news - www.globes-online.com - on March 27, 2018
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