Remember Jacob Alexander Perhaps you should. For as financial crisis prosecutions seem to fizzle out, his tale is a lesson: not only do financial scandals fade quickly from memory, but sometimes corporate executives really do pay for bad choices.
Mr. Alexander, known as Kobi, was the chief executive of Comverse Technology, a high-flying software communications company that was founded in Israel. In 2006, Comverse became enmeshed in the stock options backdating scandal that snared many technology companies in that period.
Federal authorities described Mr. Alexander’s scheme as a brazen one. For about 15 years, they say, Mr. Alexander regularly orchestrated the backdating of options. He was even accused of creating a secret slush fund for options to grant to employees for retention and as bonuses. Perhaps in hindsight, naming the fund “I. M. Fanton†after “The Phantom of the Opera†and then “Fargo†after the Coen brothers movie was not particularly a good idea.
Backdating was also a lucrative endeavor at Comverse. Mr. Alexander alone reportedly earned $138 million from selling backdated options from 1991 to2001. But when the scandal surfaced, the chief executive along with Comverse’s former chief financial officer, David Kreinberg, and Comverse’s general counsel, William F. Sorin, were all charged with violating federal criminal laws as well as the securities laws.
Comverse was not the only bad actor. More than 100 companies would be investigated or accused of some form of backdating.
Still, Mr. Alexander turned out to be unique among the executives who were accused of wrongdoing. Rather than defend himself against the charges, he disappeared, emerging later in Namibia, a country in southern Africa with beautiful desert scenery, two million people and at the time no extradition arrangement with the United States.
And there Mr. Alexander has sat for the last seven years.
It hasn’t been an uneventful period. The government has since had mixed success with the options backdating cases. For all the time and money spent, only about a dozen executives were convicted, and five served prison terms. The longest sentence handed down â€" two years â€" was given to Monster’s former chief operating officer, James J. Treacy.
The rest were really taps on the wrist. The trial of Henry T. Nicholas III, the former co-chief executive of the Broadcom Corporation, was disrupted when a judge found prosecutorial misconduct. Mr. Nicholas was tried again and sentenced to 18 months in prison. Others, like KB Home’s former chief executive, Bruce E. Karatz, received much lighter sentences, if any. Mr. Karatz was sentenced to five years probation despite a government request for six years in prison.
The civil cases were more fruitful for the government. The Securities and Exchange Commission brought about 50 of them, recovering $468 million alone from the former chief executive of the UnitedHealth Group, William W. McGuire.
But everyone has moved on. The options backdating cases are now vague memories. Even Comverse has moved forward. The chief financial officer, Mr. Kreinberg, served only a short period in jail. Comverse’s general counsel, Mr. Sorin, was sentenced to a year and a day in prison. As for Comverse, it was acquired by Verint Systems in 2012.
Mr. Alexander, meanwhile, remains in Namibia.
The years there have not been uneventful for him. His wife filed for divorce, he flew in hundreds of people for his son’s bar mitzvah â€" thus tripling the local Jewish population â€" and he founded a number of charitable causes in Namibia. There is even a Kobi Alexander Enterprise Soup Kitchen in Namibia’s capital city, Windhoek.
And while his legal case has not gone away, Mr. Alexander has gradually been chipping away at it. After he arrived, Namibia’s president added the United States to the list of countries to which Namibia could extradite. Since then, Mr. Alexander has been free on $1.3 million bail and challenging any extradition attempt. The High Court of Namibia heard the case last year, and is still considering it. Whatever their ruling, there will be more appeals and hearings. This case has years to go before he can be sent back to the United States, if ever.
But it appears that he also wants penance. Seven suits were brought against Mr. Alexander by investors, the government and Comverse itself. He has settled all of them, including the S.E.C.’s civil case, for which he paid $53.6 million to the government in fines and disgorgement. The only thing left is the criminal case.
Mr. Alexander declined requests for comment for this column made through his lawyer.
I have to wonder whether he is sitting there wondering whether his quick decision to go to Namibia, of all places, might have been a bit too hasty.
He clearly miscalculated. No doubt, Mr. Alexander saw what happened in the Enron cases and the huge sentences given out, including the 24-year, four-month term handed to Jeffrey K. Skilling, the former Enron chief executive.
But Enron and WorldCom have proved to be special cases. Had Mr. Alexander stayed in the United States, and had he been convicted, he would have been out of prison years ago.
Given the poor memory of corporate America, he would also have probably been fully rehabilitated, maybe even made a partner at a venture capital firm, given that he was one of the fathers of the Israeli technology revolution. Who knows
And there’s a lesson here as we wait for prosecutions over the financial crisis.
The first is that as memories fade, and what at the time seems like a big deal may not be so big with perspective. In retrospect, the options backdating scandal was one that involved hazy allegations of wrongdoing, much of it by people who didn’t realize that what they had done was wrong. And even in the most egregious cases, the judges had a hard time finding harm to shareholders and others. The judge in the KB Home case even scolded prosecutors, calling their sentencing memo “meanspirited and beneath this office.â€
Now, the options backdating scandal pales in comparison to the recklessness and greed of the financial crisis. But it does have implications for any criminal cases that come out of the crisis.
When juries and judges heard these kinds of financial cases, they were less likely to focus on the outrage. This was evident in the criminal case the government lost against two Bear Stearns hedge fund managers and the civil case the S.E.C. lost against a Citigroup executive.
In other words, the outrage doesn’t always transfer to the facts on the ground. It is also clear that the government remembers that it didn’t get very far in the options backdating cases and has been much more cautious with the financial crisis cases as a result.
And the short memory of Wall Street is also at work with the financial crisis. Five years on, most of the major figures are in retirement, enjoying their wealth and engaging in other pursuits. They are doing no worse, and even better in many cases, than those involved in the options backdating cases.
Which brings us back to Mr. Alexander. You can’t really feel sorry for him, as what he did was brought on himself. But still, I don’t understand why he remains there. If Mr. Alexander were to return and plead guilty, he would most likely serve only three or four years because he was never technically arrested in the United States, so his flight would not significantly enhance his sentence. And then he could serve his sentence and return to what he does best â€" creating new technologies.
Perhaps it is time for Mr. Alexander to decide to move on and make a better choice. It seems a better option than staying in limbo, even if it is a beautiful place. But again, his case is a lesson in bad decisions and their consequences.
