Human Capital & Careers

Update: Ex-Comverse CFO Pleads Guilty

Kreinberg pleads guilty to criminal fraud; he also settles with the SEC, agreeing to pay nearly $2.4 million.
Stephen TaubOctober 24, 2006

This story has been updated to include additional information.

David Kreinberg, the former chief financial officer of Comverse Technology pleaded guilty to charges of securities fraud in connection with an alleged options backdating scandal at the company. Kreinberg pled guilty to one criminal count of conspiracy to commit securities fraud, mail fraud, and wire fraud, and one criminal count of securities fraud in U.S. District Court for the Eastern District of New York on Tuesday.

Kreinberg also entered into an agreement with the Securities and Exchange Commission to settle civil charges related to the same backdating case. He agreed to payment of nearly $2.4 million in disgorgement and prejudgment interest, a permanent officer-and-director bar, and suspension from appearing or practicing before the SEC as an accountant, said the SEC in a statement.

Kreinberg personally profited $1 million by exercising stock options that had been wrongly backdated, according to Reuters. Kreinberg has been free on $1 million bail since he was arrested in August.

Without admitting or denying the allegations of the SEC’s complaint, Kreinberg is required to pay $1,769,255.80 in disgorgement, of which $989,434.00 represents the “in-the-money” benefit from exercises of backdated option grants. In addition, he will pay $625,661.88 in prejudgment interest on the full disgorgement amount. As part of the settlement, Kreinberg also has agreed to cooperate in the SEC’s ongoing litigation.

Bloomberg speculated earlier on Tuesday that Kreinberg, who left Comverse in May, may become a government witness against former Comverse chief executive officer Jacob “Kobi” Alexander. The government is trying to extradite Alexander from Namibia to face 32 charges.

“Given the nature of the investigation and the timing of the plea, I would assume that his pleas agreement will include a requirement of cooperation,” Scott Christie, a former U.S. prosecutor, told Bloomberg. “Often the most favorable plea terms are given to the person who pleads first and cooperates.”

Former general counsel William Sorin, who along with Kreinberg and Alexander was charged with one count of conspiracy, has been discussing a plea with prosecutors, added Bloomberg. The three individuals are accused of backdating the grants of stock options in order to reap larger gains.

Bloomberg said Kreinberg’s lawyer Matthew Lang did not return a call seeking comment. The wire service counts more than 140 U.S. companies having disclosed internal or federal investigations into backdating.