Kreinberg, Dan Bodner, Zeev Bregman, and Shawn K. Osborne, (collectively, Defendants ), by

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2 Kreinberg, Dan Bodner, Zeev Bregman, and Shawn K. Osborne, (collectively, Defendants ), by Plaintiff Noam Sokolow, who is now, and at all times relevant has been, a shareholder of Comverse. 2. Plaintiff, derivatively on behalf of Comverse, seeks relief for the damages sustained, and to be sustained by Comverse, as a result of Defendants violations of state and federal law, including their breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, violations of Sarbanes-Oxley Act of 2002, and violations of Section 14(a) of the Securities Exchange Act of 1934 (the Exchange Act ), which occurred between April 30, 2001 and the present (the Relevant Period ). 3. Defendants individual and collective wrongdoing resulted from, inter alia:: (i) their failure to discover and prevent the fact that Comverse was improperly backdating stock option grants to the Company s top directors and officers, which enabled Company employees to enrich themselves by knowingly and fraudulently changing the stock option grant dates to dates on which the Company's stock price was lower than the actual grant date (and thus lower than fair market value on the actual grant date); (ii) their failure to properly implement, oversee and maintain appropriate and adequate accounting and internal controls, practices and procedures for Comverse, namely concerning the administration of the Company s stock-based compensation plan; (iii) their failure to ensure that Comverse operated in compliance with all applicable federal and state laws, rules, and regulations requiring the dissemination of accurate financial statements and restricting the misuse of material non-public information; (iv) their failure in allowing the Company's financial statements to be prepared in violation of Generally Accepted Accounting Principles ( GAAP ); (v) their failure to ensure that Comverse not engage in any unsafe, unsound, or illegal business practices; and (vi) their failure to disclose, and the misappropriation 2

3 and misuse of, proprietary non-public material corporate inside information concerning the Company s inflated financial statements, which permitted certain Defendants to profit unjustly, and caused the value of the Company's net income and financial results to be materially overstated during the Relevant Period. These failures by Defendants resulted in Comverse s need to restate the Company s financial results going back to fiscal year Defendants caused or allowed Comverse executives to manipulate their stock option grant dates so as to illegally maximize their stock profits. In particular, certain Comverse executives changed their respective stock option grant dates to take advantage of lower exercise prices than the price on the actual grant date. The price of Comverse shares on the reported option-grant date, therefore, was lower than the share price on the actual day options were issued thus, providing Defendants with more favorably priced options. 5. Furthermore, the backdating of these stock options brought an instant paper gain to these Comverse executives because the options were priced below the stock s fair market value when they were actually awarded. Under GAAP, this instant paper gain was equivalent to paying extra compensation and was thus a cost to Comverse. These costs were also not properly recorded. In turn, since these costs were not properly recorded, Comverse s profits were therefore overstated and ultimately resulted in a restatement of Comverse s past financial results going back several fiscal years. 6. On March 14, 2006, before the market had opened, Defendants shocked the investing community by revealing previously undisclosed accounting irregularities regarding Comverse s stock-option grants, including, but not limited to, the accuracy of the stated dates of option grants and whether all proper corporate procedures were followed, as well as the Company s internal investigation of those irregularities. This announcement caused shares of 3

4 Comverse to plummet $4.30 per share, or approximately 15 percent, from its March 13th value of $29.15 per share to close at $24.85 on March 14th. 7. Then, on April 17, 2006, the Company confirmed what its March 14th announcement had hinted may happen that, as a result of the improprieties relating to its stockoption grants, Comverse will need to restate its financial results for fiscal years 2001 through 2005, and the first three quarters of fiscal year In addition, the Company announced that it was delaying the filing of its Annual Report on Form 10-K for the fiscal year ended January 31, The April 17th announcement caused shares of Comverse to again drop another $.89, to close at $23.31 from a previous day s closing price of $ These disclosures contradicted much of the information published to the market by Comverse, for which Defendants were responsible, concerning its reported revenues and results and evidence that Defendants breached their respective fiduciary duties with respect to overselling the Company s compliance with applicable accounting practices. Defendants wrongdoing has caused Comverse to restate its financial results for fiscal years 2001 through 2005, and the first three quarters of fiscal year 2006, which inflated the value of the Company s stock during the Relevant Period; exposed Comverse to massive liability in the form of class action lawsuits and SEC investigations; and caused substantial losses to Comverse and other damages, such as to its reputation and goodwill. JURISDICTION AND VENUE 9. This Court has jurisdiction over all claims asserted herein pursuant to 28 U.S.C. 1331, because Plaintiff s claims arise in part under the Constitution and the laws of the United States, including the Sarbanes-Oxley Act of This Court also has supplemental jurisdiction 4

5 pursuant to 28 U.S.C. 1367(a). This action is not a collusive action designed to confer jurisdiction on a court of the United States that it would not otherwise have. 10. Venue is proper in this Judicial District pursuant to Section 27 of the Exchange Act and 28 U.S.C. 1391(a)(1) because one or more of Defendants either resides or maintains executives offices in this Judicial District, and a substantial portion the acts and transactions constituting the violations of law alleged in this Complaint occurred in substantial part in this Judicial District. Moreover, Defendants have received substantial compensation in this Judicial District by doing business here and engaging in numerous activities that had an effect in this Judicial District. THE PARTIES The Plaintiff 11. Plaintiff Noam Sokolow was, at times relevant to this action, an owner and holder of Comverse common stock. The Nominal Defendant 12. Nominal Defendant Comverse is incorporated in New York and during the Relevant Period has changed its principal headquarters from locations at 170 Crossways Park Drive, Woodbury, New York to One Huntington Quadrangle, Third Floor, Melville, New York Comverse most recently announced that it had formally changed its principal headquarters to 909 Third Avenue, New York, New York Founded in 1984 and publicly-traded since 1986, Comverse and its subsidiaries engage in the design, development, manufacture, marketing, and support of software, systems, and related services for multimedia communication and information processing applications. The Company operates in three segments: Comverse Network Systems, Service Enabling Signaling 5

6 Software, and Security and Business Intelligence Recording. The Company's products are used in a range of applications by wireless and wireline telecommunications network operators and service providers; call centers; and other government, public, and commercial organizations. Comverse common stock trades on the NASDAQ under the symbol CMVT. The Director Defendants 14. The following parties, sometimes referred to herein as the Director Defendants, during the Relevant Period, served as members of the Board of Directors of Comverse as follows: Kobi Alexander 15. Director Defendant Kobi Alexander is a founder of Comverse and has served as Chairman of the Board of Directors since September 1986 and as Chief Executive Officer ( CEO ) since April Mr. Alexander is also Chairman of the Executive Committee. He has served as a director of the Company since its formation in October Mr. Alexander served as President of the Company from its formation in October 1984 until January Mr. Alexander also served as Co-Managing Director of the Company s wholly-owned Israeli subsidiary, Comverse Ltd., from its formation in 1982 until October From October 1984 to September 1986, Mr. Alexander served as Co-Chairman and Co-Chief Executive Officer of the Company. He has served as the Chairman of the High-Tech Research and Development Section of the Israeli Association of Industrialists. Mr. Alexander is also Chairman of the Board and a director of Ulticom, Inc. ( Ulticom ) and Verint Systems, Inc. ( Verint ) subsidiaries of Comverse. Further, Mr. Alexander has longstanding personal and professional entanglements and relationships with other Board Members which has prevented him from acting independently to fulfill the fiduciary duties owed to Comverse and its shareholders. For serving in his 6

7 Comverse capacities, upon information and belief, Mr. Alexander was paid a salary, not including his stock options, of approximately $1.57M for fiscal year As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Alexander totaled 4,515,270 shares. During the Relevant Period, Mr. Alexander sold 1,239,040 shares of Comverse stock for proceeds of $25,830,982. Mr. Alexander is the brother of Director Defendant Shaula A. Yemini and the son of Director Defendant Zvi Alexander. 16. As Chairman of the Board of Directors, Mr. Alexander owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Moreover, as the Company s highest-level officer, Mr. Alexander also assumed important managerial responsibilities at Comverse which required him to be reasonably informed about the day-to-day operations of the Company. Rather than fulfill these important fiduciary duties Mr. Alexander owed to Comverse, he actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached his fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Mr. Alexander s positions, he knew the adverse nonpublic information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, attendance at management and Board meetings, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Alexander participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. 7

8 Itsik Danziger 17. Director Defendant Itsik Danziger has served as a director of Comverse since November 1998, and is Chairman of the Board of Directors of Starhome BV, a subsidiary of the Company. Mr. Danziger served as President of Comverse from January 2001 until March 2003, as Chief Operating Officer of Comverse from January 1998, and additionally as its President from May 1999 until January From 1985, Mr. Danziger served in various management positions with the Company, including Vice President of research and development, and General Manager and President of the Network Systems Division. For serving in his Comverse capacities, upon information and belief, Mr. Danziger was paid a salary, not including his stock options, of approximately $160,000 for fiscal year As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Danziger totaled 325,188 shares. During the Relevant Period, Mr. Danziger sold 273,176 shares of Comverse stock for proceeds of $5,654, As a director, Mr. Danziger owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Moreover, as a high-level officer during the Relevant Period, Mr. Danziger also assumed important managerial responsibilities at Comverse which required him to be reasonably informed about the day-to-day operations of the Company. Rather than fulfill these important fiduciary duties Mr. Danziger owed to Comverse, he actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached his fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Mr. Danziger s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate 8

9 directors, officers, and employees, attendance at management and Board meetings, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Danziger participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. William F. Sorin 19. Director Defendant William F. Sorin has served as a director and Corporate Secretary of Comverse since its formation in October Mr. Sorin is an attorney engaged in private practice and is Senior General Counsel of the Company. Mr. Sorin is also a director of Ulticom and Verint, subsidiaries of Comverse. As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Sorin totaled 162,271 shares. 20. As a director, Mr. Sorin owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Rather than fulfill these important fiduciary duties Mr. Sorin owed to Comverse, he actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached his fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Mr. Sorin s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, attendance at Board meetings, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Sorin participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. 9

10 John H. Friedman 21. Director Defendant John H. Friedman has served as a director of Comverse since June Throughout the Relevant Period, Mr. Friedman has served as Chairman of the Compensation Committee, and a member of both the Audit Committee and the Corporate Governance and Nominating Committee. Mr. Friedman is also considered a financial expert by the Company. Mr. Friedman is Managing Director of Easton Capital Corp., a private investment firm founded by Mr. Friedman in Mr. Friedman also is Managing Director of Easton Hunt Capital Partners, L.P., a $110 million Small Business Investment Company founded in Mr. Friedman is also a director of Renovis Inc. and YM BioSciences Inc. Mr. Friedman is an independent director. As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Friedman totaled 101,250 shares. 22. As a director, Mr. Friedman owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Moreover, as a high-level officer, Mr. Friedman also assumed important managerial responsibilities at Comverse which required him to be reasonably informed about the day-to-day operations of the Company. Rather than fulfill these important fiduciary duties Mr. Friedman owed to Comverse, he actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached his fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Mr. Friedman s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, attendance at management and Board meetings, and via reports and other 10

11 information provided to him in connection therewith. During the Relevant Period, Mr. Friedman participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. Sam Oolie 23. Director Defendant Sam Oolie has served as a director of Comverse since May Throughout the Relevant Period, Mr. Oolie has served as a member of the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, and the Executive Committee. Mr. Oolie is also considered a financial expert by the Company. Since August 1995, Mr. Oolie has been Chairman of NoFire Technologies, Inc., a manufacturer of high performance fire retardant products. He has been Chairman of Oolie Enterprises, an investment company, since July He also served as a director of CFC Associates, a venture capital firm, from January 1984 to December Mr. Oolie also serves as a director of NCT Group, formerly Noise Cancellation Technologies, Inc. Mr. Oolie is an independent director. As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Oolie totaled 58,250 shares. 24. As a director, Mr. Oolie owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Rather than fulfill these important fiduciary duties Mr. Oolie owed to Comverse, he actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached her fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Mr. Oolie s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and 11

12 connections with other corporate directors, officers, and employees, attendance at Board meetings and committees thereof, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Oolie participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. Ron Hiram 25. Director Defendant Ron Hiram has served as a director of Comverse since June Throughout the Relevant Period, Mr. Hiram has served as a Chairman of both the Audit Committee and the Corporate Governance and Nominating Committee, and a member of both the Compensation Committee and the Executive Committee. Mr. Hiram is also considered a financial expert by the Company. Mr. Hiram is a Managing Partner of Eurofund 2000 L.P., a venture capital fund focused on Israeli related companies in the telecommunications, information technology and microelectronic spheres. Mr. Hiram is also a director of Ulticom, a subsidiary of Comverse. Mr. Hiram is an independent director. As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Hiram totaled 68,250 shares. 26. As a director, Mr. Hiram owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Rather than fulfill these important fiduciary duties Mr. Hiram owed to Comverse, he actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached his fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Mr. Hiram s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and 12

13 connections with other corporate directors, officers, and employees, attendance at Board meetings and committees thereof, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Hiram participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. Raz Alon 27. Director Defendant Raz Alon has served as a director of Comverse since December Since November 2000, Mr. Alon has served as Chairman of TopView Ventures LLC, an investment firm focused on special situation investments in a broad range of industries. Mr. Alon is an independent director. As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Alon totaled 38,000 shares. 28. As a director, Mr. Alon owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Rather than fulfill these important fiduciary duties Mr. Alon owed to Comverse, he actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached her fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Mr. Alon s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, attendance at Board meetings and committees thereof, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Alon participated in the issuance of false 13

14 and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. Francis E. Girard 29. Director Defendant Francis E. Girard was a director of Comverse from January 1998 until November Mr. Girard served as Vice Chairman of Comverse from January 2001 until January Prior to the Relevant Period, Mr. Girard was the CEO of Comverse from January 1998 until January During the Relevant Period, Mr. Girard sold 101,902 shares of Comverse stock for proceeds of $1,765, As a director, Mr. Girard owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Rather than fulfill these important fiduciary duties Mr. Girard owed to Comverse, he actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached her fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Mr. Girard s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, attendance at Board meetings and committees thereof, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Girard participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. 14

15 Shaula A. Yemini 31. Director Defendant Shaula A. Yemini was a director of Comverse from August 1997 until February Dr. Yemini is the sister of Director Defendant Kobi Alexander and the daughter of Director Defendant Zvi Alexander. 32. As a director, Dr. Yemini owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Rather than fulfill these important fiduciary duties Dr. Yemini owed to Comverse, she actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached her fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Dr. Yemini s positions, she knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, attendance at Board meetings and committees thereof, and via reports and other information provided to him in connection therewith. During the Relevant Period, Dr. Yemini participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. 15

16 Zvi Alexander 33. Director Defendant Zvi Alexander ( Alexander II ) was a director of Comverse from August 1989 until February Mr. Alexander II is the father of Director Defendants Kobi Alexander and Shaula A. Yemini. 34. As a director, Dr. Yemini owed a duty to Comverse to be reasonably informed about the business, operations and finances of the Company. Rather than fulfill these important fiduciary duties Dr. Yemini owed to Comverse, she actively participated in or knowingly encouraged, sponsored or approved many of the wrongful acts or omissions complained of herein, and/or breached her fiduciary duties to Comverse by purposefully, recklessly and/or negligently disregarding these wrongful acts or omissions. Because of Dr. Yemini s positions, she knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, attendance at Board meetings and committees thereof, and via reports and other information provided to him in connection therewith. During the Relevant Period, Dr. Yemini participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. The Officer Defendants 35. The following parties, sometimes referred to herein as the Officer Defendants, who, in addition to Director Defendants Alexander, Danziger, and Sorin, served in direct and substantial management positions during the Relevant Period as follows: 16

17 David Kreinberg 36. Officer Defendant David Kreinberg has served as Executive Vice President and CFO of Comverse since September Previously, Mr. Kreinberg served as the Company s Vice President of Finance and Chief Financial Officer ( CFO ) from May 1999, as Vice President of Finance and Treasurer from April 1996 and as Vice President of Financial Planning from April Mr. Kreinberg is a Certified Public Accountant. Mr. Kreinberg also is a director of Ulticom and Verint, subsidiaries of Comverse. For serving in his Comverse capacities, upon information and belief, Mr. Kreinberg was paid a salary, not including his stock options, of approximately $774,000 for fiscal year As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Kreinberg totaled 244,296 shares. During the Relevant Period, Mr. Kreinberg sold 342,143 shares of Comverse stock for proceeds of $7,882, Because of Mr. Kreinberg s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Kreinberg participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. Dan Bodner 38. Officer Defendant Dan Bodner has served as President and/or CEO of Verint since February Mr. Bodner also is a director of Verint. For serving in his Comverse capacities, upon information and belief, Mr. Bodner was paid a salary, not including his stock options, of approximately $734,000 for fiscal year As of April 15, 2005, the Comverse 17

18 common stock beneficially owned by Mr. Bodner totaled 1,594 shares. During the Relevant Period, Mr. Bodner sold 89,896 shares of Comverse stock for proceeds of $2,249, Because of Mr. Bodner s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Bodner participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. Zeev Bregman 40. Officer Defendant Zeev Bregman has served as CEO of Comverse, Inc., a subsidiary of the Company, since January For serving in his Comverse capacities, upon information and belief, Mr. Bregman was paid a salary, not including his stock options, of approximately $755,000 for fiscal year As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Bregman totaled 468,892 shares. During the Relevant Period, Mr. Bregman sold 390,000 shares of Comverse stock for proceeds of $7,884, Because of Mr. Bregman s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Bregman participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. 18

19 Shawn K. Osborne 42. Officer Defendant Shawn K. Osborne has served as President and CEO of Ulticom since September Mr. Osborne currently serves on the Board of Directors of the Telecommunications Industry Association. Mr. Osborne also is a director of Ulticom. For serving in his Comverse capacities, upon information and belief, Mr. Osborne was paid a salary, not including his stock options, of approximately $440,000 for fiscal year As of April 15, 2005, the Comverse common stock beneficially owned by Mr. Osborne totaled 7,500 shares. 43. Because of Mr. Osborne s positions, he knew the adverse non-public information about the business of Comverse, as well as it finances, markets and accounting practices, via access to internal corporate documents, conversations and connections with other corporate directors, officers, and employees, and via reports and other information provided to him in connection therewith. During the Relevant Period, Mr. Osborne participated in the issuance of false and/or misleading statements, including the approval of the false and/or misleading press releases and SEC filings. 44. The Director Defendants and Officer Defendants are sometimes collectively referred to herein as Defendants. OBLIGATIONS AND DUTIES OF THE DEFENDANTS 45. By reason of their positions as directors, officers and/or fiduciaries of Comverse and because of their ability to control the business, corporate and financial affairs of Comverse, each of the Defendants owed Comverse the duty to exercise due care and diligence in the management and administration of the affairs of the Company and in the use and preservation of its property and assets, and owed the duty of loyalty, including full and candid disclosure of all material facts related thereto. Further, Defendants owed a duty to Comverse to ensure that 19

20 Comverse operated in compliance with all applicable federal and state laws, rules, and regulations; and that Comverse not engage in any unsafe, unsound, or illegal business practices. The conduct of Defendants complained of herein involves knowing violations of their duties as directors of Comverse, and the absence of good faith on their part which Defendants were aware or should have been aware posed a risk of serious injury to Comverse. 46. To discharge these duties, Defendants were required to exercise reasonable and prudent supervision over the management, policies, practices, controls, and financial and corporate affairs of Comverse. By virtue of this obligation of ordinary care and diligence, Defendants were required, among other things, to: (a) manage, conduct, supervise, and direct the employees, businesses and affairs of Comverse, in accordance with laws, rules and regulations, and the charter and by-laws of Comverse; (b) neither violate nor knowingly or recklessly permit any officer, director or employee of Comverse to violate applicable laws, rules and regulations and to exercise reasonable control and supervision over such officers and employees; ensure the prudence and soundness of policies and practices undertaken or proposed to be undertaken by Comverse; (c) remain informed as to how Comverse was, in fact, operating, and upon receiving notice or information of unsafe, imprudent or unsound practices, to make reasonable investigation in connection therewith and to take steps to correct that condition or practice, including, but not limited to, maintaining and implementing an adequate system of financial controls to gather and report information internally, to allow Defendants to perform 20

21 their oversight function properly to prevent the use of non-public corporate information for personal profit; (d) supervise the preparation, filing and/or dissemination of any SEC filing, press releases, audits, reports or other information disseminated by Comverse and to examine and evaluate any reports of examinations or investigations concerning the practices, products or conduct of officers of Comverse and to make full and accurate disclosure of all material facts, concerning inter alia, each of the subjects and duties set forth above; and (e) preserve and enhance Comverse s reputation as befits a public corporation and to maintain public trust and confidence in Comverse s as a prudently managed institution fully capable of meeting its duties and obligations. 47. Defendants breached their duties of loyalty and good faith by allowing Defendants to cause or by themselves causing the Company to misrepresent its financial results, as detailed herein, and by failing to prevent Defendants from taking such illegal actions. In addition, because of these illegal actions and course of conduct during the Relevant Period, the Company is now the subject of several class action lawsuits that allege violations of federal securities laws. As a result, Comverse has expended and will continue to expend significant sums of money. Such expenditures include, but are not limited to: (a) Costs incurred to carry out internal investigations, including legal fees paid to outside counsel; and (b) Costs incurred in investigating and defending Comverse and certain directors and officers in the class action lawsuits, plus potentially millions of dollars in settlements or to satisfy an adverse judgment. 21

22 48. Moreover, these actions have irreparably damages Comverse s corporate image and goodwill. For at least the foreseeable future, Comverse will suffer from what is known as the liar s discount, a term applied to the stocks of companies who have been implicated in illegal behavior and have misled the investing public, such that Comverse s ability to raise equity capital or debt on favorable terms in the future is now impaired. THE COMVERSE BOARD OF DIRECTORS 49. Director Defendants, by their fiduciary duties of care, good faith and loyalty, owed to Comverse a duty to insure that the Company s financial reporting fairly presented, in all material aspects, the operations and financial condition of Comverse. In order to adequately carry out these duties, it is necessary for Director Defendants to know and understand the material, non-public information to be disclosed or omitted from the Company s public statements. This material, non-public information included the fact that Comverse s internal controls were woefully defective and that the Company s executives were improperly backdating their stock options. 50. Committees of the Board. The standing committees of the Comverse Board include: (i) the Audit Committee; (ii) the Compensation Committee; (iii) the Corporate Governance and Nominating Committee; and (iv) the Executive Committee. 51. Audit Committee. Director Defendants Friedman, Oolie and Hiram have been members of the Audit Committee during the Relevant Period. Director Defendant Hiram has served as Chairman of the Audit Committee during the Relevant Period. The Comverse Board of Directors determined that each of the members of its Audit Committee qualifies as an audit committee financial expert as defined in item 401(h)(2) of Regulation S-K and pursuant to Section 407 of Sarbanes-Oxley. 22

23 52. As members of the Audit Committee, Director Defendants Friedman, Oolie and Hiram had a special duty to know and understand this material information regarding the stockoption grants as set out in the Audit Committee s charter, which provides that the Audit Committee is responsible for reviewing and discussing with management and the independent auditors the Company s earnings press releases, as well as financial information and earning guidance provided to analysts and rating agencies. In particular, the Audit Committee assists the Board in fulfilling certain of its responsibilities, including (i) overseeing the Company's financial reporting process; (ii) overseeing the Company's compliance with legal and regulatory requirements; (iii) reviewing and evaluating the independent auditors' qualifications and independence; (iv) reviewing the performance of the Company's internal audit function, if applicable, and its independent auditors and its systems of internal accounting and financial controls; (v) reviewing and authorizing related-party transactions (as defined in the relevant NASDAQ requirements); (vi) overseeing the Company's code of business conduct and ethics as established by the Board; and (vii) preparing the Committee report required to be included in the Company's annual proxy statement. 53. The members of the Audit Committee knew or should have known that Comverse s financial statements were false and thereby permitted or condoned the unlawful practices described herein. Accordingly, Director Defendants Friedman, Oolie and Hiram, through their improper execution of their duties and responsibilities as members of the Comverse Audit Committee, knew of or recklessly disregarded the rampant unlawful practices at Comverse described herein. 23

24 54. Compensation Committee. Director Defendants Friedman, Oolie and Hiram have also been members of the Audit Committee during the Relevant Period. Director Defendant Friedman has served as Chairman of the Audit Committee during the Relevant Period. 55. As members of the Compensation Committee, Director Defendants Friedman, Oolie and Hiram were responsible for administering the issuance of awards under the Company s stock option plans. In particular, the Compensation Committee (i) determines salaries and incentive compensation for the Company's executive officers; (ii) administers the issuance of awards under the Company's stock option plans and such other compensation plans as may be assigned by the Board from time to time; and (iii) performs such other duties as may from time to time be assigned by the Board with respect to compensation. 56. The improper dating of these stock options, in turn, caused a misstatement of Comverse s earning because the compensation costs in connection with the misdated options were not properly recorded in violation of GAAP. 57. Furthermore, Defendants Alexander, Danziger, Sorin Kreinberg, Bodner, Bregman and Osborne, as officers of Comverse, had ample opportunity to discuss this material information with their fellow officers at management meetings and via internal corporate documents and reports. 58. Defendants Alexander, Danziger, Sorin, Friedman, Oolie, Alon, Girard, Yemini and Alexander II, as directors of Comverse, had ample opportunity to discuss this material information with management and their fellow directors at any of the Board meetings that occurred during the Relevant Period, as well as at meeting of committees of the Board. 59. Despite these duties, Defendants negligently, recklessly, and/or intentionally caused or allowed, by their actions or inactions, the following improper statements to be 24

25 disseminated by Comverse to the investing public and the Company s shareholders during the Relevant Period. 60. During the Relevant Period, Defendants caused or allowed Comverse executives to manipulate their stock option grant dates so as to illegally maximize their stock profits. Specifically, certain Comverse executives changed their respective stock option grant dates to take advantage of lower exercise prices than the price on the actual grant date. The price of Comverse shares on the reported option-grant date, therefore, was lower than the share price on the actual day options were issued thus, providing these Comverse executives with more favorably priced options. 61. Backdating these stock options brought an instant paper gain to these executives because the options were priced below the stock s fair market value when they were actually awarded. Under GAAP, this instant paper gain was equivalent to paying extra compensation and was thus a cost to Comverse. These costs were also not properly recorded, and in turn, Comverse s profits were overstated at all relevant times. 62. Instead of properly disclosing these improper stock option backdating practices and the corresponding understatement of compensation costs, Defendants caused or allowed these practices to continue unabated throughout the Relevant Period. As a result, the following earnings press releases and SEC filings materially misstated Comverse s earnings in violation of GAAP. These misstatements, in turn, effected an artificial inflation of the Company s stock price, which certain Defendants utilized to sell over $55 million of their personal holdings. SUBSTANTIVE ALLEGATIONS 63. The Relevant Period commenced on April 30, 2001, when Comverse filed with the SEC its Annual Report of Form 10-K for the period ending January 31,

26 64. On June 4, 2001, Defendants caused or allowed the Company to issue a press release entitled, Comverse Technology Announces Record Results For First Quarter Of Fiscal The press release provides in relevant part: Comverse Technology, Inc. announced for the first quarter of fiscal year 2001, ended April 30, 2001, net income growth of 40%, to a record $78,956,000 ($0.43 per diluted share), compared with $56,205,000 ($0.32 per diluted share) for the first quarter of fiscal The company posted record sales of $365,037,000 for the first quarter of fiscal 2001, an increase of 36% over the first quarter of fiscal On June 13, 2001, Defendants caused or allowed the Company to file a Form Q- 10 which repeated the Company s financial results disclosed in the June 4, 2001 earnings press release. The Form 10-Q was signed by Defendants Alexander and Kreinberg. 66. On August 29, 2001, Defendants caused or allowed the Company to issue a press release entitled, Comverse Technology Announces Second Quarter Results: Sales of $345,090,000 EPS Diluted Of $0.28, Excluding Non-Recurring Charges. The press release provided in relevant part: Comverse Technology, Inc. announced for the second quarter of fiscal year 2001, ended July 31, 2001, net income, excluding nonrecurring charges, of $50,012,00 ($0.28 per diluted share), compared with net income, excluding non-recurring charges, of $62,489,000 ($0.36 per diluted share) for the second quarter of fiscal The Company posted sales of $345,090,000 for the second quarter of fiscal 2001, compared with the $292,070,000 posted for the second quarter of fiscal On September 14, 2001, Defendants caused or allowed the Company to file a Form 10-Q which repeated the Company s financial results disclosed in the August 28, 2001 earnings press release. The Form 10-Q was signed by Defendants Alexander and Kreinberg. 26

27 68. On December 11, 2001, Defendants caused or allowed the Company to issue a press release entitled, Comverse Technology Reports Third Quarter Results: Sales of $295,032,000, EPS Diluted Of $0.11, Excluding Non-Recurring Charges. The press release provided in relevant part: Comverse Technology, Inc announced for the third quarter of fiscal year 2001, ended October 31, 2001, net income, excluding non-recurring charges, of $20,122,000 ($0.11 per diluted share), compared with net income, excluding non-recurring charges, of $68,414,000 ($0.38 per diluted share) for the third quarter of fiscal During the third quarter of fiscal 2001, the Company incurred nonrecurring after-tax charges totaling $18,427,000 for costs related to a write-down of investments. 69. On December 14, 2001, Defendants caused or allowed the Company to file a Form 10-Q which repeated the Company s financial results disclosed in the December 11, 2001 earnings press release. The Form 10-Q was signed by Defendants Alexander and Kreinberg. 70. On March 12, 2002, Defendants caused or allowed the Company to issue a press release entitled, Comverse Technology Reports Fourth Quarter Results: Sales of $265,059,000, EPS Diluted Of $0.06, Excluding Non-Recurring Charges. The press release provided in relevant part: Comverse Technology, Inc. announced for the fourth quarter of fiscal 2001, ended January 31, 2002, net income, excluding nonrecurring charges, of $10,627,000 ($0.06 per diluted share), compared with net income, excluding non-recurring charges, of $76,865,000 ($0.41 per diluted share) for the fourth quarter of fiscal During the fourth quarter of fiscal 2001, the Company incurred non-recurring charges of $54,687,000 for costs related to the Company s workforce reduction and organizational restructuring, and $14,649,000 relating to the write-down of investments. 27

28 71. On April 30, 2002, Defendants filed a Form 10-Q which repeated the Company s financial results disclosed in the March 12, 2002 press release. The Form 10-Q was signed by Defendants Alexander, Danziger, Kreinberg, Alexander II, Friedman, Girard, Hiram, Oolie, Sorin and Yemini. 72. On June 5, 2002, Defendants caused or allowed the Company to issue a press release entitled, Comverse Technology Reports First Quarter Fiscal 2002 Results: Sales of $211,194,000, Loss Per Share, Excluding Non-Recurring Charges of $0.04. The press release provided in relevant part: Comverse Technology, Inc announced for the first quarter of fiscal year 2002, a net loss, excluding non-recurring charges, of $8,183,000 ($0.04 per diluted share), compared with net income of $78,956,000 ($0.43 per diluted share) for the first quarter of fiscal During the first quarter of fiscal 2002, the Company incurred non-recurring charges of $15,393,000 relating to the write-down of investments. The Company posted sales of $211,194,000 for the first quarter of fiscal 2002, compared with $365,037,000 posted for the first quarter of fiscal On June 12, 2002, Defendants caused or allowed the Company to file a Form 10- Q which repeated the Company s financial results disclosed in the June 5, 2002 earnings press release. The Form 10-Q was signed by Defendants Alexander and Kreinberg. 74. On September 10, 2002, Defendants caused or allowed the Company to issue a press release entitled, Comverse Technology Reports Second Quarter Fiscal 2002 Results: Sales of $181,210,000, Loss Per Share, Excluding Non-Recurring Charges of $0.07. The press release provided in relevant part: Comverse Technology, Inc announced for the second quarter of fiscal year 2002, a net loss, excluding non-recurring gains and charges, of $12,652,000 ($0.07 per diluted share), compared with 28

29 net income of $50,012,000 ($0.28 per diluted share) for the second quarter of fiscal During the second quarter of fiscal 2002, the Company incurred non-recurring charges of $31,502,000, resulting from the repurchase of $166,000,000 face value of the company s convertible debt, and non-recurring charges of $10,968,000 and $2,798,000 relating the write-down of investments and workforce reductions, respectively. Including non-recurring gains and charges, the Company posted net income of $3,923,000 ($0.02 per diluted share) for the second quarter of fiscal 2002, compared with net income of $27,984,000 ($0.15 per diluted share) for the second quarter of fiscal On September 13, 2002, Defendants caused or allowed the Company to file a Form 10-Q which repeated the Company s financial results disclosed in the September 10, 2002 earnings press release. The Form 10-Q was signed by Defendants Alexander and Kreinberg. 76. On November 11, 2002, Defendants caused or allowed the Company to issue a press release entitled, Comverse Technology Reports Third Quarter Fiscal 2002 Results: Sales of $167,469,000, Loss Per Share, Excluding Non-Recurring Charges of $0.13. The press release provided in relevant part: Comverse Technology, Inc announced for the third quarter of fiscal year 2002, ended October 31, 2002, a net loss, excluding non-recurring gains and charges, of $25,290,000 ($0.13 per diluted share), compared with net income of $20,122,000 ($0.11 per diluted share) for the third quarter of fiscal During the third quarter of fiscal 2002, the Company incurred nonrecurring charges of $56,866,000, relating to a workforce reduction and other restructuring related and impairment charges, $4,099,000 relating to the write-down of investments and non-recurring gains of $7,436,000 resulting from the repurchase of $39,180,000 face value of the company s convertible debt. Including non-recurring charges and gains, the Company posted a net loss of $79,683,000 ($0.43 per share) for the third quarter of fiscal 2002, compared with net income of $1,695,000 ($0.01 per diluted share) for the third quarter of fiscal