Merrill Lynch downgraded Comverse Technology (CMVT) to neutral from buy, citing concerns about the company's accounting.
Analyst Tal Liani noted Comverse Technology's internal review related to the accuracy of stated dates of the company's option grants. The analyst worries that the company deflated the value of options by using incorrect dates and boosting Generally Accepted Accounting Principal (GAAP) profits, and says this may impact reported 2005 GAAP numbers. Comverse Technology has not indicated that the Securities and Exchange Commission (SEC) is involved at this point, but the analyst is concerned about the potential that Comverse Technology receives an investigation notice from the SEC as has happened with other companies following internal accounting reviews. The analyst also thinks share prices may not trade up, but will remain at current levels until the situation clears up.