Further accounting errors hit Comverse shares

Shares of Comverse, the voicemail software company, fell more than 14 per cent on Wednesday, a day after the company said an investigation into options backdating had uncovered additional accounting problems.

The news marked a fresh setback for Comverse, whose founder and former chief executive, Jacob Alexander, is being sought by the US on charges of securities fraud for his alleged role in an options backdating scheme.

Comverse said an internal investigation had uncovered “errors in the recognition of revenue related to certain contracts, errors in the recording of certain deferred tax accounts and the misclassification of certain expenses in earlier periods”.

It said it had expanded its accounting investigation beyond backdating to include the “possible misuse of accounting reserves” and other problems.

The company said it was not possible to estimate the effect the newly discovered errors might have on its previous financial statements. Comverse has already said it will be forced to revise its financial results because of the backdating scandal.

Comverse shares ended the day in New York 14.3 per cent lower at $17.69. They had fallen from a high of $29.18 in March after evidence of improperly backdated options grants emerged.

Zeev Bregman, chief executive, sought to reassure investors: “It is important to recognise that our business is sound, holds strong competitive positions and provides exceptional value to our clients worldwide.”

But Goldman Sachs, which on Wednesday downgraded Comverse from hold to sell, said the expanded accounting review had “significantly” increased the chance the company’s shares could be de-listed from the stock market.

Comverse is one of two companies whose former executives have been hit with criminal charges over backdating, in which the grant dates of stock options are manipulated to inflate their value. More than 150 companies have been involved in the scandal.

David Kreinberg, Comverse’s former chief financial officer, and William Sorin, Comverse’s former general counsel, have pleaded guilty to backdating charges as part of a plea deal.

Mr Alexander, who was arrested in Namibia after being branded a fugitive from justice by the US, is facing extradition proceedings. He has vowed to fight the charges if he is forced to return to the US.

US authorities allege Mr Alexander and his associates engaged in a complex scheme to mislead shareholders and regulators about the company’s options grants between 1991 and 2001.