Comverse Technology, Inc.

Pomerantz won a $225 million settlement in December 2009 after four-years of hard-fought litigation on behalf of investors in Comverse Technology, Inc. who were allegedly harmed by an executive stock options backdating scheme. $60 million of the recovery was to come from Comverse’s founder and former CEO, Jaco “Kobi” Alexander’s own pocket – one of the largest individual officer-defendant contributions ever in a securities class action. The $225 million settlement was, at the time, the second-largest recovery to date in a securities case alleging stock options backdating.

Plaintiffs alleged that the company’s executives, including Kobi Alexander, retroactively cherry-picked dates when the company’s stock closed at low prices and falsely claimed that their options were granted on those dates. Because the options were, in fact, granted on dates when the market price was higher, the backdating put the options in the money the instant they were granted.

Investors suffered huge losses when Comverse disclosed the backdating scheme in March and April 2006, with the company’s common stock price dropping 20 % after the two announcements.
Pomerantz filed a lawsuit against Comverse and some of its directors in 2006, alleging that the undisclosed backdating scheme amounted to securities fraud. According to the complaint, options were in some cases granted to fictitious employees to create a slush fund of backdated options for management to dole out as it pleased.

After Pomerantz filed the initial complaint, the three main perpetrators of the fraud – Alexander, CFO David Kreinberg, and General Counsel William F. Sorin – were indicted by the U.S Department of Justice.

U.S. Magistrate Judge Ramon E. Reyes initially denied Pomerantz’s motion to be named lead counsel on behalf of the Menorah Group, comprised of several Israeli institutional investors, instead appointing the Plumbers & Pipefitters National Pension Fund(P&P) as Lead Plaintiff and another firm as lead counsel.

Pomerantz filed an objection and appealed the decision to the district court, arguing that most of P&P’s losses resulted from in-and-out transactions, in which both the purchase and the sale of the shares occurred before the alleged misrepresentations were disclosed. If the in-and-out shares were excluded, Pomerantz reasoned, then P&P realized a $132,722 gain. U.S. District Judge Nicholas G. Garaufis of the Eastern District of New York agreed and appointed the Menorah Group as lead plaintiff and Pomerantz as lead counsel.

In its objection Pomerantz cited, among other cases, the Supreme Court’s decision in Dura Pharmaceuticals, Inc. v. Broudo. There, the Court clarified the applicable standards for pleading loss causation: a purchaser must have retained shares at the time the truth was disclosed to the market. This ruling, the plaintiffs alleged, essentially endorsed the Second Circuit Court of Appeals’ decision in Lentell v. Merrill Lynch & Co., Inc., which held that to establish loss causation, a plaintiff must allege “that the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security.”

This decision secured by Pomerantz effected a seismic shift in how courts assess plaintiffs’ losses at the lead plaintiff stage. Pomerantz partner Patrick V. Dahlstrom, who led Pomerantz’s litigation with partner Murielle Steven Walsh and Marc I. Gross (then Partner, now Senior Counsel), stated at the time that the decision “reinforces the growing recognition that courts must conduct such analysis of the facts … and eliminate those losses that are clearly not recoverable, in determining which movant has the largest financial interest.”

Alexander settled civil charges with the SEC in 2011 and surrendered bank accounts worth $46 million to federal authorities. In 2016, after a plea bargain, he returned to the U.S. to face criminal charges and was sentenced to 30 months in prison by Judge Garaufis – the same judge who had overseen Pomerantz’s securities litigation against Comverse – in February 2017.