Ex-CEO Admits to Fraud After Decade on Lam in Africa
Ex-CEO Admits to Fraud After Decade on Lam in Africa
(Bloomberg) -- The former chief executive of Comverse Technology Inc. who hid in Africa for a decade pleaded guilty to backdating stock options and was jailed immediately by a U.S. judge who said the defendant’s intelligence and guile meant he couldn’t be trusted to return to court.
Jacob "Kobi" Alexander, 64, returned to New York Wednesday from Namibia to face federal charges originally filed in 2006. While he had faced 35 counts related to the backdating of stock options, Alexander pleaded guilty to one count of securities fraud and asked the judge to let him out on bail until his Dec. 16 sentencing.
“After 10 years of waiting for him to show up, he did come back but not with empty hands; he came back with a deal," U.S. District Judge Nicholas Garaufis in Brooklyn said to Alexander’s lawyer Benjamin Brafman. He rejected Brafman’s plea to give his client credit for coming back.
"You know how I look at this," Garaufis said. "This is a very smart man who’s made millions of dollars in business. You know what he’s doing? He’s sizing up the situation on this side of the bench, so spare me. I wasn’t born yesterday."
Alexander was arrested in Namibia at the request of the U.S. in September 2006, a month after he was charged. He fought extradition since then and, according to his lawyers, could have dragged out the fight almost indefinitely. He faces as long as 10 years in prison although others convicted of the same crime received much lower sentences.
Alexander, who wore rimless glasses, a dark suit and a white shirt at the hearing, had asked to be released on a $25 million bond, secured by $10 million cash, and that he be allowed to live in a Manhattan apartment with his wife, Hanna, and their youngest child.
His lawyers argued Alexander, an Israeli citizen, "has a life-long record of business success, philanthropic work and a superb military record" with the Israeli Defense Force.
Garaufis denied the bail request, ordering Alexander to be held in a maximum-security federal jail in Brooklyn until he’s sentenced. Brafman declined to say whether he’d appeal the judge’s ruling.
“We are bitterly disappointed,” was the lawyer’s only comment to reporters.
Alexander claimed he wasn’t a fugitive from American justice and instead decided to move his family to Namibia before any charges were filed.
Prosecutor James Loonam said Alexander is “both cunning and resourceful” and his net worth of more than $100 million gives him the means necessary to get away if he thinks he’ll get a long prison sentence.
“The defendant could find his next Namibia should he so choose,” Loonam said in court papers.
Alexander’s sister told Loonam that she was stunned to find that he had moved to Namibia.
“The defendant has the capacity to lie and hide major life-altering decisions even from those closest to him,” Loonam said.
After the investigation began in 2006, Alexander offered a multimillion-dollar bribe to Comverse’s chief financial officer to take the blame for the options backdating, saying they shouldn’t both have to “go down,” prosecutors said.
The U.S. said Alexander attempted to curry favor with Namibian authorities, investing millions of dollars in businesses, charities and tourism.
Alexander slammed the options-backdating cases, saying that of 29 people prosecuted for the crime, only four were convicted after trial and they received an average sentence of just 11 months in prison.
Brooklyn U.S. Attorney Robert Capers said Alexander led the options backdating scheme. William Sorin, the firm’s former general counsel, and David Kreinberg, the ex-finance chief, helped backdate stock options beginning in 1998 until 2006.
Federal prosecutor also said the money was parked in a secret slush fund which was initially named “I. M. Fanton,” which the U.S. said was an apparent reference to "Phantom of the Opera" and later renamed “Fargo” after the Coen brothers’ movie.
The U.S. was frustrated in prosecuting the case. While Alexander, his wife Hanna and three children left the U.S. for Israel in June 2006 as the criminal investigation neared its conclusion, prosecutors said Alexander had his American lawyers strike a deal for his return to New York in late July 2006. The U.S. later told Namibian authorities it that was a ruse to buy him time and flee.
Alexander instead secretly flew with his family to Germany and then traveled on to Namibia, prosecutors said. While in Israel from July 14 to July 18 of that year, he transferred $57 million to his accounts at Bank Leumi Le-Israel Ltd. and Bank Hapoalim Ltd., according to the government. He also attempted to transfer another $12 million from a U.S. account which was halted by the U.S. after he failed to return.
In 2007, Garaufis granted the government’s request to seize $50 million in Alexander’s U.S. bank accounts which prosecutors said were the proceeds of his backdating scheme. In 2010, Alexander agreed to pay almost $54 million to settle a U.S. Securities and Exchange Commission probe.
Prosecutors said on Wednesday they wouldn’t seek any additional financial penalties.
Sorin and Kreinberg later pleaded guilty and were sentenced in the case.
The case is U.S. v. Alexander, 06-cr-00628, U.S. District Court, Eastern District of New York (Brooklyn).
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