Comverse headquarters.

After 13 years, Comverse ordered to compensate former employees $16 million in backdating affair

The Comverse options backdating affair, which first made headlines in 2006, prevented its employees from exercising their options. The employees will finally be compensated after reaching a settlement as part of class actions lawsuits filed in 2009

Comverse's backdating affair has finally come to an end in Israel. Calcalist has learned that 13 years after class action lawsuits were filed, a compromise agreement was reached under which Comverse Technology Inc. will pay $16 million to eligible employees of the company, past and present. Subject to the approval of the arrangement by the Tel Aviv District Court, a trustee will be appointed to oversee the distribution of funds. The settlement was reached as part of class actions filed by the law firm of Amit Manor-Yuki Shemesh as well as by Adv. Mor Tagar. A request for approval of a settlement in the cases was submitted on Sunday to Judge Zila Zfat of the Tel Aviv District Court, by Comverse, represented by the law firm of Gross & Co., and by the prosecuters.
The backdating affair at Comverse first made headlines in early 2006 and was centered on actions taken by company executives to re-date the options in the company, which was already traded on Nasdaq at the time.
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בניין הנהלת קומברס ברעננה
בניין הנהלת קומברס ברעננה
Comverse headquarters.
(Photo: Orel Cohen)
The affair broke out following academic research and a journalistic investigation, in which it was discovered that the company's financial statements, as well as those of 2,000 other companies, had accounting flaws, which forced the company to correct and resubmit them. As a result, Comverse was forced to freeze the exercise of the options and between April 2006 and September 2011, employees were not allowed to exercise options for the shares they held. Administrative and criminal proceedings were instituted against former company executives, led by the then CEO, Kobi Alexander, who at the height of the affair and to evade prosecution in the U.S. fled to Namibia. In 2016, Alexander returned to the United States, was convicted and sentenced to 30 months in prison. In March 2018, Alexander was brought to Israel to serve the remainder of his sentence, which he completed two months later.
As part of the application for approval of the settlement agreement, it is stated that the represented group includes everyone who worked or works at Comverse or its subsidiary then Verint, and received from the companies convertible options of the company and did not exercise them before the options plan was frozen. This, with the exception of employees who were involved in the backdating affair.

The plaintiffs argued that due to the action and conduct of the respondent the plaintiffs were not allowed to exercise the options they were given. According to them, the options embodied a significant financial benefit and caused them considerable financial damages. On the other hand, the company rejected the allegations, noting that the practice of dating back was carried out by individual executives who acted unlawfully and outside their authority.
The parties reached a settlement following a mediation procedure held in New York which is now awaiting the court’s approval. As part of the settlement, it was recommended that out of the total amount of compensation, the applicants receive $3.2 million plus VAT. Attorneys Michael Ginsburg and Yori Nehushtan of Gross & Co., who are representing Comverse, stated: "The settlement agreement was reached with great effort on the part of all parties and after about 13 years of complex proceedings. The parties were able to end the litigation by way of compromise and without it constituting one admission of the other's claims, and with a respectable balance of all considerations."