First Guilty Plea and SEC Settlement in Options Case

The casualties among corporate executives keep mounting in the ever-expanding options scandal.  Yesterday the government got its first guilty plea when David Kreinberg, former CFO of Comverse Technology, plead guilty to securities fraud charges.  Specifically, Mr. Kreinberg waived indictment and plead guilty to one felony count of conspiracy to commit securities fraud, mail fraud and wire fraud and a second count of securities fraud.  The charges stem from the stock options backdating and slush fund schemes that the government claims took place at Comverse from 1998 to 2006.  The conspiracy charges have a maximum sentence of five years in prison and a fine of up to $250,000 or twice the gain or loss from the offense.  The securities fraud charge has a maximum sentence of ten years in prison and a fine of up to $1,000,000.   The charges also require the payment of restitution according to the press release from the U.S. Attorney’s Office for the Eastern District of New York.

Mr. Kreinberg also settled civil charges with the SEC.  Specifically, Mr. Kreinberg consented to the entry of a permanent injunction enjoining him from violating or aiding and abetting the violation of the antifraud, reporting, record keeping, internal controls, false statements to auditors, SOX certification, and securities ownership reporting provisions of the federal securities laws.  Mr. Kreinberg also consented to the entry of an order  which requires him to pay nearly $2.4 million in disgorgement and prejudgment interest and which bars him from being an officer or director and suspends him from practice before the SEC as an accountant.  The disgorgement ordered is based on the in the money benefit from the backdated option grants which was $1,789,255.80.

To date thirty eight executives from nineteen companies have resigned, retired, been terminated or suspended in the wake of the expanding options backdating scandal.  Mr. Kreinberg is the first to plead guilt to criminal charges and settle with the SEC on civil charges based on claims of option backdating.  Since the option scandal is a priority of the Financial Frauds Task Force and criminal prosecutors and the SEC seem to be expanding their inquiries, more of the same can be expected in the future.