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Ex-Comverse CEO Arrested in Namibia

The fugitive faces extradition to the U.S. to answer charges of stock option fraud at the tech company.

September 28, 2006|Jonathan Peterson | Times Staff Writer

WASHINGTON — Jacob "Kobi" Alexander, the voicemail magnate who fled the country rather than face charges of stock option fraud, has been arrested in the southwest African nation of Namibia, U.S. authorities said Wednesday.

The former chief executive of Comverse Technology Inc. was detained Wednesday in Windhoek, the capital of Namibia. U.S. officials are negotiating to bring him back to this country, where he faces charges of conspiracy and multiple counts of fraud and money laundering. He was scheduled to appear before a Namibian court by Friday.

Alexander's capture is the latest event of one of the oddest chapters of the stock option scandal, which has centered on allegations that executives improperly manipulated the awards to increase their profits. The Justice Department said that when authorities closed in on Comverse this summer, Alexander wired $57 million to Israel, where he holds citizenship.

He then took off on an overseas odyssey that sparked a global manhunt abetted by Interpol. Last month the 54-year-old fugitive was reportedly sighted in a Sri Lankan fishing village.

U.S. officials provided few details Wednesday about the circumstances surrounding Alexander's arrest by local authorities.

"We are very grateful for the Namibians' swift action and commend them for their vigilance," U.S. Atty. Roslynn R. Mauskopf said in a statement. "We intend promptly to seek the return of the defendant to the United States to answer the serious charges now pending against him."

If convicted of the securities fraud charges, which carry the greatest penalty, Alexander could face 25 years in prison, Mauskopf said.

By fleeing from his prosecutors, Alexander may have undermined his own case, some scholars said. He probably will be denied bail, said Jim Cohen, a professor of criminal law at Fordham Law School.

Beyond that, "the government will be entitled to an instruction to the jury that flight -- going fugitive -- is evidence of consciousness of guilt," Cohen said.

Robert G. Morvillo, an attorney who had represented Alexander, did not return a phone call.

Stock options give their holders the right to buy stock at a set price within a certain time limit. Typically, that price is the same as the price on the day the option was granted. But at Comverse and other companies, insiders may have improperly cherry-picked dates from the past that had lower stock prices. The practice is known as backdating.

Christopher Cox, chairman of the Securities and Exchange Commission, recently told Congress that his agency was investigating more than 100 companies for possible misconduct in their stock option programs.

Alexander is the second former chief executive to face criminal charges in the stock option affair. The first was Gregory L. Reyes, former head of Brocade Communications Systems, who is contesting 12 counts of securities fraud and other charges of stock option manipulation.

In August, the Justice Department charged Alexander and two of his senior colleagues at Comverse, David Kreinberg, the former chief financial officer, and William F. Sorin, the former general counsel, with improprieties in their handling of the company's option program.

Among other allegations, prosecutors say Alexander and the other executives created lists of phantom employees to get stock options. Once approved by the board, the grants were transferred to a slush fund under the name "I.M. Fanton" (an allusion to "phantom"), and Alexander handed out the awards to real employees as he saw fit, the government says.

The Comverse actions were apparently taken in large part to retain and recruit workers, but top executives allegedly profited as well. Alexander gained at least $6.4 million in profit from backdating, according to investigators. Overall, he exercised $138 million in options, and federal authorities are seeking that he forfeit all ill-gotten gains.

"Alexander's alleged role in options backdating victimized Comverse shareholders and deceived prospective investors," Mark J. Mershon, assistant director in charge of the FBI's New York field office, said in a statement. "The fraud affected the company's bottom line by misstating earnings. The alleged conduct is illegal, and Alexander's apprehension shows that the FBI will work internationally to bring perpetrators of corporate fraud to justice."

Under Alexander, Comverse grew in the 1990s from an obscure firm whose stock once sold for a penny to a world-leading producer of voicemail software with 5,000 employees. He resigned May 1, as the company conducted an internal probe of its stock option program.

After disappearing this summer, Alexander had been rumored to be hiding out in Israel, where his family has a second home.

Paul D. Baker, a Comverse spokesman in Melville, N.Y., said the company would have no comment on the government's announcement Wednesday.

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jonathan.peterson@latimes.com

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