The news as of the first coffee this morning, and the music, thanks to LimeWire.com, is The Beatles' "I've Just Seen A Face," downloaded at no cost thanks to the urination war between The Beatles' business entity Apple and iTunes. I mean I'm willing to pay for iTunes, maintain quality and fight piracy and all that, but so far I've gotten Revolver, Abbey Road and now Rubber Soul from file-sharing because hey, if two billionaires can't split the difference on 10 or 12 cents royalty per song or whatever it is, screw 'em:Comverse, a subsidiary of Comverse Technology, Inc., who sells software and systems enabling network-based multimedia enhanced communication and billing services, has announced that it has completed its acquisition of privately-held Netonomy for approximately $19 million in cash, subject, as usual, to certain post-closing adjustments.
Netonomy, is a customer self-service, bill analysis and point of sale products vendor. The move, Comverse officials say, is to extend their real-time billing and customer management products for communication service providers with "additional tools to increase efficiency and enhance the end-customer experience."Netonomy customers include Bouygues Telecom, several Orange operators, T-Mobile UK, Telstra and Vodafone UK.
Howard Woolf, President Comverse Converged Billing Solutions Group, said this latest acquisition is "part of our commitment to provide the most comprehensive and innovative solutions to the communications industry.""Joining Comverse enables Netonomy's customers to benefit from Comverse's field proven, end-to-end billing offering as well as the company's strength in messaging, content, converged IP communications and handset software," said John Ball, CEO of Netonomy.
Earlier this week Comverse announced the launch of Quad Play Suite, described by company officials as "a pre-integrated package combining IPTV middleware with fixed-mobile voice and video communication applications."
The Quad Play Suite uses IP Multimedia Subsystem (IMS) architecture for service convergence across wireless, wireline and cable networks, and gives a way for service providers to enter the quad play market.
The announcement is part of Comverse's focus on converged IP communications, specifically its recent acquisition of Netcentrex, a vendor of Class 5 application servers with 4 million VoIP lines in commercial service, as well as its portfolio of VoIP, IP Centrex, Triple Play and IMS products.
The Quad Play deal is based on the idea that, in company officials' words, "pre-integrating the various components necessary for a quad play service will help lower the complexity and costs of entry for carriers looking at expanding their services in this way."
Of course the company's staving off NASDAQ delisting as well -- on Tuesday, two weeks before their latest deadline to file their financial reports, Comverse requested the Nasdaq Listing and Hearing Review Council grant yet another deferral, this time for 60 days, according to the Israeli industry observer Roee Bergman.
Comverse, Bergman reported, "has until September 25 to complete the restatements of its financial statements and to file its annual report for the fiscal year ended January 31, 2006 and quarterly report for the quarter ended April 30, 2006, but may not be able to meet the deadline."
NASDAQ officials have said there's no assurance the extension will be granted, or that the company will remain listed on NASDAQ.
On August 18, Bergman said, "Comverse obtained an extension until September 25 to file its annual and quarterly financial reports. Comverse now believes that it might not make the new deadline, and therefore applied for a further extension."
Comverse hasn't filed the financial reports due to the need to restate the company's finances "as a result of the stock options grant affair at the company," Bergman said.
As Business Week has noted, "Comverse is one of nearly 80 companies under scrutiny by the Securities and Exchange Commission or Department of Justice for possible backdating of stock-option grants." Three former executives have been charged.
The SEC said two of the executives, Comverse's founder and former Chairman and CEO Jacob "Kobi" Alexander, and David Kreinberg, Comverse's former Chief Financial Officer, also created a slush fund of backdated options by causing options to be granted to fictitious employees and, later, used these options to recruit and retain key personnel.
A good article by Martin C. Daks on Law.com article explains that on August 9, the Securities and Exchange Commission filed a civil suit against Kreinberg and Alexander, and former general counsel, William Sorin, SEC v. Alexander, Kreinberg and Sorin, 06-CV-3844 (E.D.N.Y.).
"The complaint alleges that from 1991 through 2001 Alexander and Sorin, and from 1998 through 2002 Kreinberg, backdated Comverse stock options improperly," Daks says. "It alleges Alexander and Kreinberg created records that falsely indicated that Comverse's board had approved the backdating scheme, and then took steps to hide it from the company's auditors."
Or, as the SEC put it, "the former executives collectively realized millions of dollars of ill-gotten compensation through the exercise of illegally backdated option grants and the subsequent sale of Comverse common stock."
The backdated option grants and secret option slush fund was "a deceit of the highest order upon Comverse Technology Inc.'s shareholders," said Linda Thomsen, Director of the SEC's Division of Enforcement.
The suit further alleges, according to Daks, that "because the backdated options should have been recognized as an expense on Comverse's books, but were not, the company overstated its net income and earnings per share between 1991 and at least 2002."
Industry observer Marcy Gordon explains that in backdating, "options are issued retroactively to coincide with low points in a company's share price, a practice that can fatten profits for options recipients when they sell their shares at higher market prices. Backdating options can be legal as long as the practice is disclosed to investors and properly approved by the company's board. In some cases, however, the practice can run afoul of federal accounting and tax laws."
For some reason the practice seems prevalent in the tech sector. More than 100 public companies," many of them in the technology sector," Gordon says, "are under scrutiny by the Securities and Exchange Commission for possible rigging of stock option grants to boost their value to the recipients. The Justice Department is investigating scores of companies for possible criminal violations."
One target is Irvine, Calif.-based Broadcom, which "uncovered grants awarded between June 2000 and 2002 whose measurement dates differed from grant dates," Gordon says:
"On Friday, the company said it found additional grants awarded between June 1998 and May 2003 that also had differing measurement and grant dates. As a result of the newly identified grants, Broadcom said it expects to record expenses at least double the $750 million total forecast in July."
It's not unique to tech, of course, profitable ideas rarely are: As Gordon points out, The Home Depot Inc. has reported that federal prosecutors have asked for information in connection with an inquiry into stock options: "Atlanta-based Home Depot said in June that the SEC had begun an examination after the company disclosed that it had found $10 million in unrecorded stock option expense."
Sharper Image Corp. is requesting "more time" to "finalize its second-quarter results," due to investigation of the practice, and clothier Gap Inc. says an "internal review of its stock option practices found errors related to the dating of certain grants, resulting in unrecorded expense of around $5 million," Gordon says.
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