MARKETPLACE SHLOMO MAITAL THE HIGH COST OF FLIGHT Kobi Alexander’s journey from hi-tech visionary to convicted felon US DISTRICT Judge Nicholas Garaufis for a vacation in Israel. His lawyers had der’s brother-in-law Yechiam Yemini, a stared sternly at the defendant dressed in arranged with US authorities that he would Columbia University computer science brown prison garb, in the dock of a Brook- return to face indictment on July 31 for se- professor, to launch Efrat Future Technol- lyn courtroom, and said, “I really don’t curities fraud related to the backdating of ogies, the name of which later was changed understand how someone as brilliant and options for himself and some senior em- to Comverse Technology ‒ Comverse being accomplished and focused and respected as ployees from 1998 to 2001. a fusion of the words “communication” and you could be so incredibly, abjectly foolish “versatility.” to make some of the decisions you made.” HOWEVER, RATHER than face trial, he The company became a market leader in The 64-year-old defendant, Jacob “Kobi” fled with his wife and children to the desert voicemail hardware and software sold to Alexander, an Israeli hi-tech visionary and nation of Namibia, on Africa’s southwest telecom companies. It was the first Israeli founder of the once market-leading compa- coast, from where he felt he could not be company to be included in the prestigious ny Comverse, replied, “I’m truly sorry for extradited. (He fled Israel because Israel Standard & Poor’s 500 Index, and did a everything I have done wrong. I deeply re- and the US have an extradition treaty.) successful initial public offering of stock gret running away instead of dealing with Namibia is a huge arid nation, mostly on NASDAQ in 1986. Alexander became the justice system like I should have. All I desert, 40 times the size of Israel with just the company’s CEO and chairman in 1987, ask is, when you sentence me today, you two million people. It was first colonized when he was only 35. pay attention to the good in addition to the by Germany, then ruled by South Africa, As mobile-phone use boomed, Com- bad… For the majority of my life, I lived achieving full independence only in 1990. verse’s revenues soared, passing $1 billion honestly and worked very hard.” Alexander and his family spent more than in the late 1990s. Comverse dominated On February 23, Judge Garaufis sen- a decade in exile, in Windhoek, Namibia, voicemail management and sold a popular tenced Alexander to 30 months in prison for and his wife and children stood by him the short-message service-center product. Its securities fraud involving backdating of op- entire time. He voluntarily returned to the headquarters were in the US, while R&D tions. Alexander will serve his sentence at a US in August 2016 and was at once arrested and manufacturing were done in Israel. At Pennsylvania prison, though he may ask to and jailed. At the time, he asked Garaufis one point, Comverse was one of Israel’s serve part of it in Israel. The sentence was to release him on a $25 million bail bond largest employers of software engineers. It a bit more than the two years Alexander’s but the judge refused so Alexander has been benefited from numerous grants from the lawyers sought but far less than the 10-year incarcerated since. Office of Chief Scientist. maximum the law specifies. He is eligible Why did Garaufis call Alexander “bril- At the Technion Institute of Management, for a one-third reduction for good behavior. liant” and “accomplished”? I recall working with Comverse on man- The sentence brings to an end a de- It was an understatement. In 1982, Alex- agement development nearly 15 years ago. cade-long saga. ander, then an investment banker, joined The daily newspapers Haaretz and The Je- In late June 2006, Alexander left the US with engineer Boaz Misholi and Alexan- rusalem Post called Comverse a “flagship” 32 THE JERUSALEM REPORT APRIL 3, 2017 BLOOMBERG VIA GETTYVIA IMAGES BLOOMBERG Kobi Alexander stands outside the Windhoek Magistrates’ Court in Namibia after an extradition hearing in 2008. Alexander won his battle against extradition and spent more than a decade in exile in Namibia before voluntarily returning to the US in 2016 THE JERUSALEM REPORT APRIL 3, 2017 33 THE LIES THEY TELL A Journey Through America CATCH THE JEW! By Tuvia Tenenbom By Tuvia Tenenbom “Brutal, irreverent, and “Tenembom’s insights are sharp cutting, Tenenbom’s riveting and clear. Read what Tenenbom has book aims to disrupt American to tell us, without bias. We don’t have complacency. For those willing to the privilege not to know.” look at America from an outsider’s perspective, Tenenbom is a – HAARETZ, Einat Talmon sobering guide.” – Publishers Weekly PB | 370 pp | ISBN 9789652299116 | $19.95 | 98 NIS PB | 467pp | ISBN 9789652297983 | $24.95 | 98 NIS ISRAEL’S EDGE MIRIAM’S SONG By Jason Gewirtz By Smadar Shir “Brimming with colorful “It’s very easy to sing when you interviews, Israel’s Edge relates have a miracle in your life. It’s very the story of how an elite army easy to love God when your dreams unit - Talpiot - ultimately drove come true. But the test is if you can innovations like Iron Dome and also continue to love God when you lose had a catalytic effect on Israel’s high- two children.” tech industry.” – Miriam Peretz – Dan Senor, co-author of “Start-Up Nation” HC | 398 pp | ISBN 9789652298751 | $34.95 | 140 NIS PB | 256 pp | ISBN 9789652297136 | $18 | 80 NIS PB | 398 pp | ISBN 9789652298355 | $29.95 | 110 NIS DEFENSIVE SHIELD ISRAEL FOR BEGINNERS By Gal Hirsch By Angelo Colorni “I have no doubt that we “To those of you who have will hear much more about Gal been here for a while…I suggest Hirsch. I would like the people of grabbing a copy of this book and Israel to derive benefit from his going off to read it someplace qualifications, experience, and where your raucous laughter will skills.” not disturb your neighbors.” – Benjamin Netanyahu, – Carl Hoffman, ESRA Magazine Prime Minister, September 2015 HC| 450pp| ISBN# 9789652298652| $29.95| 110 NIS PB | 180pp | ISBN 9789652294838 | $16.95 | 68 NIS Look for us on | MARKETPLACE company, and Bloomberg News called Al- A study by Erik Lie of the University of of the information he provided. exander “the wizard of Israel’s technology Iowa’s Tippie School of Business found that Did Alexander pay compensation? boom.” I remember thinking, at the time, more than 2,000 companies used options He did. While in Namibia, Alexander how well Comverse was run and led. backdating to reward senior executives be- paid $60m. to Comverse, in 2009, as well Then came the options-backdating scan- tween 1996 and 2002. as $6m. in penalties to the SEC to settle civ- dal. And it all fell apart. So why is Alexander going to jail for do- il lawsuits against him. He also gave large ing something that is legal? sums to Namibia educational institutions. I’m truly sorry for US prosecutors said Alexander backdated Alexander and his family are far from dates for options between 1998 and 2001 poverty. Observers believe that he has re- everything I have to make them more valuable but concealed tained some of his millions, even after gen- this action. Concealment is what makes it erous philanthropy in Namibia. done wrong. I deeply illegal, because this inflates earnings. The What happened to Comverse? regret running away law requires companies to take a financial Partly as a result of the options backdat- charge for raising the value of options, and ing, Comverse has ceased to exist. The law instead of dealing with to report it. Alexander, as head of Com- required Comverse to redo all its financial verse, apparently failed to do this ‒ the reports dating back to when the securities the justice system like I transaction was hidden. fraud occurred. This was costly, distracting If you incur an expense, and backdating and cast a pall on Comverse’s share price, should have options does incur an expense, it must appear and Comverse was delisted from the Nas- in the quarterly income statement. If it does daq exchange because its stock price plum- not, it’s fraud. It is cheating and misleading meted below the minimum. The 2008 finan- What does “backdating options” mean? the shareholders. To be legal, backdating cial crisis hurt Comverse, leading to large- Many hi-tech companies offer senior options has to be clearly communicated scale layoffs. But mostly, I believe, it lacked employees stock options – the right to buy to the company shareholders, accurately the leadership Alexander had provided. the company’s shares at the price at which reflected in the financial statements, and In 2012 and 2013, Comverse sold off all the shares trade on the day the options con- clearly taken into account in tax returns. its holdings and ceased to exist. Two inde- tract is signed. When the stock price rises, Alexander, according to the indictment, did pendent companies, Xuri and Verint Sys- the workers can make a fortune, exercising not fulfill those terms. tems, carry on the company’s best-known their options by buying the stock at the low- product lines. er price and selling it high. Companies do STEVE JOBS received backdated stock op- After Alexander serves his time, he will this because it does not require them to lay tions; in 2001, he won the right to buy 7.5 be expelled from the US and will return to out scarce cash directly.