Layoffs, class action add to Comverse ills
Expecting business to slow this year is the reason cited for Comverse Technology's decision to cut its workforce by 8%, CEO Andre Dahan told employees. Layoffs are in the offing for about 360 of the company's 4,500 workers worldwide, including more than 100 in Israel, he said.
In a letter circulated to employees and submitted to the United States Securities and Exchange Commission in lieu of audited financial reports, Dahan also said that the options backdating affair, which has forced the company to amend historical financial reports and has prevented the company from publishing its quarterly financials since March 2006, remains under review. Dahan offered no estimated end-date for the investigation.
Comverse founder and former CEO Kobi Alexander fled to Namibia in mid-2006, shortly after a 35-count criminal indictment relating to the affair was filed against him in the U.S. Alexander was arrested two months later after an international warrant was issued for his arrest. Since then a Namibian court has repeatedly delayed Alexander's extradition hearing; the latest postponement was issued earlier this month and schedules the next court session for June 9.
According to a document attached to Dahan's letter, in the 12 months ending January 31, 2008 the company spent $70 million investigating of the affair.
In September 2007 the company had projected that revision of its historical financial reports would be completed by the end of January 2008, but before the end of the year it announced the indefinite postponement of the reports' publication.
Dahan's letter was included in the results of operations and financial condition the company is required to submit to the U.S. Securities and Exchange Commission in lieu of audited financial reports. According to the report, at the end of January 2008 the firm held $1.3 billion in cash, cash equivalents and bank deposits. The company also said it expects to write down $200 million worth of long term, Auction Rate Security bonds (ARS) that are now worth just $100,000.
Meanwhile, in other Comverse news, a class action motion is brewing. A former Comverse employee has told the Tel Aviv Labor Tribunal that the firm's failure to publish amended financial reports has meant that the firm's employee stock options plan has been suspended for the past three years, and as a result workers are unable to cash in their options.
Roni Katriel, who was employed at Comverse during 2000-2006, says that she and other employees received convertible Comverse options from time to time as part of their employment terms. The options were convertible to Comverse shares listed on New York's Nasdaq exchange and are now traded over-the-counter. Katriel says the options constituted a substantial benefit offered to employees. In early 2006 it was discovered that the options had been backdated, and as a result the options' exercise price was lower than the market price - and the firm's true financial condition incorrectly reported. As a result, the options plan was suspended in March 2006, and workers have been unable to exercise the options.
Katriel argues that this ongoing situation means that workers have been denied benefits to which they are entitled and have suffered significant financial damage for which they deserve compensation. According to an expert option submitted with the application, Katriel herself has incurred a loss of $37,965, the value of her own options at the time of their suspension in March 2006. More than 2,000 affected workers could be awarded compensation totalling tens of millions of dollars if the suit is heard and won.
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