'We inherited this mess from Kobi Alexander'
CEO admits frustration with the time and money spent on cleaning up years of sloppy accounting
Comverse Technology CEO, president and board member Andre Dahan admits that he's frustrated. After three years at the top, he still doesn't have a good answer to the $500 million question that is troubling many investors: How did the company manage to spend that sum on restating its financial reports for the past two years, and still not be issuing statements on a regular basis?
A week ago Comverse shares made history when they fell 32% on Wall Street in a single day of trading. In a special interview with TheMarker, Dahan admitted that one factor in the share's crash was what could be termed investor fatigue with the seemingly endless accounting problems of what was once the pride of Israel's technology companies.
Dahan, 61, was brought in after the first quarter of 2007 to put out the raging fires set by his predecessor, Kobi Alexander, whose backdating ways have cost the company hundreds of millions of dollars to clean up. Alexander is in Namibia, fighting extradition to the United States on charges related to the backdating scandal.
Dahan, whose resume includes stints as president and CEO of Mobile Multimedia Services at AT&T Wireless, president of North America and Global Accounts for Dun & Bradstreet and numerous executive positions at both Dun & Bradstreet and at several prominent IT companies, says he accepted Comverse's offer because he wanted to reconnect with Israel, which he left in the 1960s.
Comverse's accounting woes, Dahan says, "were a result of fraud and actions that were defined as fraud in the area of backdating. It was that way throughout the global technology sector, but it was worse at Comverse." He says the company's board had hoped to find its way out of the accounting morass within a few months, but once it was discovered that the previous management also dealt with inventory, the accountants deemed it necessary to examine the reporting of revenue back to the company's earliest days.
"I said, 'what are you talking about?' But they asked questions that couldn't be answered. Some things at the company were built in a negligent manner because it began as a startup," Dahan related.
He notes that the millions spent on accounting was money that should have gone into growing the company. "I could have built an entire campus in Ra'anana" with that money, Dahan says. Nevertheless, he remains hopeful. "We've never been so close to filing the reports. We're in the final phase, and everyone in the company would testify that every effort was made to complete the process as quickly as possible."
How much can a company like yours usually expect to pay its accounts for its reports each quarter?
"Between $6 million and $7 million," Dahan says. So why is Comverse spending hundreds of millions on reports now?
"It's consultants, it's lawyers. Our purchasing department is very efficient and negotiates with them constantly on the price. It's not just Deloitte, it's consulting firms, too. The fraud was everywhere, in every accounting area of the company. It was all handled with total negligence."
Dahan dismisses the suggestion that Comverse should sue Deloitte for its role in creating the reporting problems.
"The responsibility falls on the audit company and on the board of directors. As a result of the fraud that went on here in the actions of the previous directors, any entity that comes to examine the accounts is taking a big risk. It's not a 100-meter accounting dash, it's a marathon."