NEW YORK, Feb. 21, 2008 (PRIME NEWSWIRE) -- By an Order dated February 19, 2008 in In re Comverse Technology Inc. Sec. Litig., 06 CV 1825 (NGG) (RER) (E.D.N.Y.), Judge Nicholas G. Garaufis denied defendants' Motions to Dismiss Lead Plaintiffs Consolidated Amended Class Action Complaint. Pomerantz Haudek Block Grossman & Gross LLP (www.pomerantzlaw.com) ("Pomerantz") Lead Counsel in the case, represents Lead Plaintiffs, institutional investors Menorah Insurance Co. Ltd. and Mivtachim Pension Funds, Ltd. (collectively, "Menorah Group").
The securities fraud class action involves the massive improper backdating of options at Comverse Technology, Inc. ("Comverse") (Pink Sheets:CMVT). The complaint alleges that senior officers of the Company repeatedly "cherry picked" option grant dates when the Company's stock was trading at relatively low market prices, and then fabricated paperwork to cover up the selection process. Additionally, Defendants created a "slush fund" of backdated options issued to fictitious employees which were then awarded to actual employees at later dates. Moreover, the complaint alleges that in order to insure that the backdated options were in the money when exercised, defendants engaged in an additional scheme to inflate income by manipulating reserves and misclassifying expenses.
As investors became aware of the widespread accounting fraud at the Company, and defendants' lack of integrity and credibility, the price of Comverse shares plummeted from $29.15 per share to less than $18 per share following the disclosures regarding the additional accounting irregularities. This decline represents a loss of market capitalization exceeding $2 billion, indicative of the damages sustained by Class Members. Comverse's former CEO, Jacob "Kobi" Alexander, fled to Namibia shortly after the scheme was uncovered in the summer of 2006, and faces extradition by the U.S. Department of Justice.
Of particular note was Judge Garaufis' denial of the Compensation and Audit Committee members' motions to dismiss. As members of these Committees, these defendants were responsible for administering the Company's stock option plans and granting its option awards. Lead Plaintiff alleged that during the Class Period, these options awards contained "as of" dates which were backdated to reflect historically low share prices of Comverse stock. Throughout the Class Period, the Compensation Committee defendants received Comverse stock options and sold Comverse common stock. "As a result," writes Judge Garaufis in his decision, "they had firsthand knowledge as shareholders of the ups and downs in Comverse's stock price, which makes it likely that they were aware that the 'as of' dates on the unanimous consent forms they signed corresponded to low points in Comverse's stock price." Citing the procedure that a court must follow when faced with a Rule 12(b)(6) motion to dismiss a Section 10(b) action, as established by the Supreme Court in Tellabs, Inv. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007), and referencing the "red flags" evident on the face of the unanimous consent forms, as well as the Committee members' "experience and knowledge," Judge Garaufis held that the facts alleged by Menorah Group "give rise to a 'strong inference' that (the Comverse Directors) acted recklessly -- that is, that the danger that they were committing fraud by signing the unanimous consent forms was 'so obvious that (they) must have been aware of it.'"
The Pomerantz Firm, which has offices in New York, Chicago and Washington, D.C., is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 70 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. For more information about the Firm, visit our web site at www.pomlaw.com.
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