Stock Sales Draw Lawsuit at Amdocs

A lawsuit pokes into trades by execs and raises questions about a partnership called TOES Corp.

July 22, 2002

4 Min Read
Stock Sales Draw Lawsuit at Amdocs

A recent shareholder suit against Amdocs Ltd. (NYSE: DOX) accuses execs at the maker of billing and operation support system (OSS) software of benefiting unjustly from insider share dealings. And it raises questions about the nature of a joint venture created by Amdocs with Bell Canada (NYSE/Toronto: BCE).

The allegations are still just that -- claims without proof. Indeed, the case, "Simon vs. Amdocs Ltd.," entered in U.S. District Court late last month, is one of several class action complaints against the firm. And there's nothing unusual in that: In these trying times, public companies in the struggling telecom sector have been beset with lawsuits claiming they should have/could have/might have warned investors of the dark days we're suffering now.

But the latest suit to hit Amdocs pokes into an area where the company's been questioned before. And it raises the issue of what forms the boundary between everyday business transactions and questionable behavior -- certainly something many companies are chewing over right now.

The Simon lawsuit specifically accuses top Amdocs executives -- including Bruce Anderson, CEO and board chairman of the parent company, Amdocs Ltd.; Dov Baharav, CEO of Amdocs Management, which conducts the day-to-day operations of Amdocs; Avinoam Naor, former CEO of Amdocs Ltd. and present vice chairman of the board; and Robert Minicucci, CFO of Amdocs Ltd. -- of using a separate business called TOES Corporation to make their share trades appear to be done by outsiders.

The complaint reads: "TOES Corp. reportedly is owned by a select group of senior Amdocs executives, and acted as a front company through which defendants made substantial insider trades under the guise of being private shareholders."

The ownership of TOES Corp. hasn't been publicly disclosed, but online financial sources such as Yahoo (Nasdaq: YHOO) indicate that it's been the entity for trading hundreds of thousands of shares of Amdocs common stock since the company went public in 1998. This year alone, TOES has sold over 130,000 shares worth more than $3 million.

Some analysts say this is much ado about nothing. "My understanding is that TOES is an entity much like a blind trust," says one financial research analyst, who asked not to be named. "There's a trustee who manages shares on behalf of the members. Of course, there's no way to know what are the communications between the trustee and the shareholders."

Another issue raised in the Simon complaint has to do with allegations that Certen Inc., formed as a joint venture between Amdocs and Bell Canada in January 2001 to create a billing and management system for the carrier, is, in effect, allowing Amdocs to double deal by selling to an entity that isn't quite at arms-length from itself.

The Simon complaint cites news articles that reportedly have stated that Amdocs has already realized revenue from the creation of Certen, of which Amdocs owns 10 percent at present and will eventually own at least 35 percent, on the completion of a 30-month contract.

The Center for Financial Research and Analysis Inc. (CFRA), a financial research company in Washington, D.C., apparently has questioned for some time whether by profiting from Certen, Amdocs isn't selling its own products back to itself.

Not an issue, some say. "I see nothing wrong about it," says the anonymous analyst. "It seems to be a straightforward kind of joint venture, a reasonably good situation. Lots of companies are willing to invest in a customer site in order to get a big contract. That doesn't mean they're double dealing."

Amdocs agrees. Indeed, it says there's no merit to any of the current allegations made in lawsuits against it and that it will defend itself vigorously.

But disturbing questions linger. TOES Corp., for instance, isn't the only company with an interest in Amdocs that includes various company executives and engages in sizeable share transactions. In the company's annual report to the Securities and Exchange Commission (SEC), for instance, a limited private investment partnership called Welsh Carson Anderson & Stowe is listed as owning 5 percent of outstanding Amdocs common stock as of November 30, 2001. Bruce Anderson and Robert Minicucci are partners in that firm.

The Amdocs annual report also states: "As of November 30, 2001, the aggregate number of our voting ordinary sharesbeneficially owned by our directors, senior managers and certain key employeeswas 52,286,292 shares." The total number of shares outstanding was 211,848,851, making the ownership stake by insiders nearly 25 percent.

Some analysts think this is a tempest in a teapot, and they say they're more concerned about Amdocs' stock price than any question of unproven allegations. "As the attorneys about this," says Michael Latimore of Raymond James, "we think what's driving the stock is general weakness in the telecom market. I'm just waiting for things to come back."

And despite being a market leader in OSS, the company's suffering its share of the carrier spending famine: At close of market Friday, Amdocs stock was trading at $7.52, down $0.49 (6.12%).

— Mary Jander, Senior Editor, Light Reading

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