Corporate Fraud Task Force: How They Doin’?
Posted by Peter Lattman
August 9, 2006, 3:52 pm
blogs.wsj.com
The Justice Department used today’s charges against three former Comverse Technology executives to do a bit of self-congratulating over its success in prosecuting corporate crime. Along with its D.C. press conference this afternoon, the DOJ issued a press release trumpeting the numbers put up by the Corporate Fraud Task Force, formed in July 2002 in the wake of the Enron and WorldCom disasters. “With today’s indictment,” reads the release, “the Justice Department furthers its commitment to the American worker, investor, and honest taxpayers.”
The CFTF says it’s secured more than 1,000 corporate fraud convictions, convicted more than 100 corporate CEOs and presidents with corporate fraud, and charged more than 1,300 defendants. High-profile wins include Enron’s Skilling and Lay; WorldCom’s Ebbers; Adelphia’s Rigas family; executives at Computer Associates (now CA); and ImClone’s Sam Waksal.
But the DOJ has in several high-profile situations come under criticism for overzealousness in its pursuit of corporate crime. Numerous legal commentators criticized the Justice Department for bringing charges agains investment banker Frank Quattrone, whose conviction the Second Circuit reversed earlier this year. Last week, the Fifth Circuit largely overturned the convictions and released from prison the four former Merrill Lynch executives charged with Enron-related fraud. And last month, federal judge Lewis Kaplan ruled that federal prosecutors in the tax-shelter case violated KPMG defendants constitutional rights by pressuring their employer to stop paying their legal bills.
O Law Blog reader, please give us your report card. How has the Justice Department done in its efforts to fight corporate fraud?
...
A Scramble at Comverse
August 9, 2006, 12:57 pm
Posted by Ashby Jones
blogs.wsj.com
WSJ.com editor Tim Hanrahan has put together a quick chronology of what Comverse Technology executives did in the wake of an inquiry by a Wall Street Journal reporter into a pattern of suspicious option grants. The timeline is based on the criminal complaint and affidavit sworn to by an FBI special agent.
Friday, March 3, 2006 — WSJ reporter calls chairman of Comverse’s compensation committee about suspicious pattern of options grants, where options were granted on days that coincided with dips in the stock price. Reporter provides charts to committee chairman, who sends them to a company lawyer, who shows them to CEO Kobi Alexander. Alexander reviews the charts and says “we picked good days,” in explaining the fortuitous grant dates.
Sunday, March 5 — Alexander, finance chief David Kreinberg and General Counsel William Sorin meet with company lawyer. They explain one option grant by saying that Alexander noticed a dip in the stock price and picked that date, the same day, to price the options.
Monday, March 6 – The three men state to company lawyer that the grants were made by acting quickly when the stock price dropped, meaning grant dates were selected and approved on the same day.
Tuesday, March 7 – Company issues statement to WSJ: “Regarding your questions from yesterday, our response is: ‘All grants of stock options to our management and employees were made in accordance with the applicable laws and regulations.’ ” In response, reporter asks the company to confirm that grants were made on the dates listed in his table. This provokes more discussion at Comverse. The three men repeat that the grants were approved on a dip in the stock price.
Wednesday, March 8 — Comverse tells WSJ: “The options were approved on the dates in your table.”
Thursday, March 9 – Alexander, Sorin and Kreinberg tell Comverse lawyer that they have retained a law firm to repesent them individually. They say that there may be “issues” and “hypothetically speaking” they may not have called compensation committee members for approval on the actual date of the grants and that may have “looked back” in selecting options dates. Comverse lawyer ends meeting and tells the men he plans to call emergency meeting of the board to dicuss the developments.
Friday, March 10 – Board forms special committee to investigate the options dating.
Sunday, March 12 — Comverse issues new statement to WSJ: “We are withdrawing our previous comments, and we are replacing them with the following: ‘We are currently reviewing our option grants. Accordingly, the earlier statements should not be used.’ “
Monday, March 13 — Alexander and Kreinberg admit to Comverse lawyer — who has cautioned the men that he/she doesn’t represent them — that grants were backdated, there were grants to ficititious “phantom” individuals, and that an account called “Fargo” was used from for several years ending in 2002 to store the phantom options, which they said were used to retain employees, not high-paid executives. Alexander tells Comverse lawyer that it was a different environment in the 1990s and that every company in Silicon Valley was “doing it” — or backdating.
Tuesday, March 14 — Comverse stock drops 15% after company announces it has launched internal investigation to review options grants
Saturday, March 18 – WSJ publishes its front page “Perfect Payday” article, which looks at options grants at Comverse and other companies. It puts the odds of the grants at Comverse happening by chance at one in six billion.
See the Options Scorecard, which lists more than 75 companies and the current state of options probes. |
