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Thursday, March 28, 2024 | Back issues
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Investor Complains of Options Slush Fund

BROOKLYN (CN) - Senior executives at Comverse Technology generated "hundreds of thousands" of bogus stock options by submitting fictitious employee names to the company's compensation committee, a shareholder says in Federal Court. The stock options "were placed in a secret slush fund and awarded to new and existing Comverse employees at the discretion of Comverse's CEO, Jacob Alexander," according to the complaint.

Comverse has been the subject of an SEC lawsuit and federal prosecutors indicted Alexander and declared him a fugitive when he did not return from a family vacation in Israel in 2006, according to The New York Times.

Plaintiff Mark Levy's complaint names only Itsik Danziger and John Does 1-20 as defendants, along with Comverse. Danziger was a senior director of the company from 1998 until October 2006, according to the complaint.

Levy claims that Alexander transferred about 650,000 options into the slush fund, which he called I.M. Fanton, for the Broadway play, "The Phantom of the Opera." He later changed the name to Fargo.

The SEC complaint and the federal arrest affidavit said that Alexander instructed the company to transfer 89,000 options to an "Israeli executive," whom Levy's lawsuit identifies as Danziger.

"Within six months of acquiring and exercising these Slush Options, Danziger sold in the open market the common stock obtained as a consequence of their exercise for at least $4,000,000.00 in short-swing profits," according to the complaint.

All the other John Doe executives who received options from the slush fund did likewise, Levy says. He adds that he needs more time to discover the identities of the other participants in the scheme.

Levy says the company and its shareholders deserve the short swing profits.

The complaint, originally filed in February 2007, was refilled last week. Levy is represented by Jack Fruchter with Abraham, Fruchter & Twersky.

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