The disclosure last week by Comtech Telecommunications Corp. that its chief executive's security clearance has been suspended, over contacts with an alleged Israeli spy, should have limited impact on the company in the short term, two analysts said Monday.
Comtech, a Melville defense electronics contactor, disclosed in its annual report to the Securities and Exchange Commission that, in August, the government temporarily suspended president and chief executive Fred Kornberg's security clearance.
Comtech said "certain officers and employees" of the company had received subpoenas of records from a U.S. District Court in June.
The company believed the subpoenas relate to a grand jury investigation "stemming from our CEO's contacts with a scientific attache to the Israeli Purchasing Mission in the U.S. who our CEO met in connection with the sale of our equipment," to Israel in the 1980s.
The filing added that the attache, whom it did not name, was "later alleged to have conducted intelligence operations in the U.S."
Comtech disclosed in the same filing an investigation by the Securities and Exchange Commission into the purchase by Kornberg "and other persons" of shares in 2010 of CPI International Inc., after Comtech and CPI had terminated a merger agreement. No further details about either investigation were given.
Comtech didn't return a telephone call or respond to an email seeking comment.
Comtech shares dropped by 3.3 percent on Sept. 27 in reaction to the disclosure, closing at $27.43. They closed Monday at $27.74, up 10 cents.
Analyst Mark Jordan of Noble Financial Capital Markets said Comtech's corporate organization as a holding company reduces the impact of Kornberg's suspended security clearance. "Fred is the head of the company but is not the president of any of the operational subsidiaries," said Jordan. "His lack of security clearance would not impact the day-to-day operations of those subsidiaries."
Federal government contacts account for almost half of Comtech's sales. Chris Quilty, an analyst at brokerage Raymond James, said the short-term effect of the investigation is likely to be legal costs. "In the longer term," he said, "it is clearly not the ideal situation."
Comtech has struggled, Jordan said, since losing out on an Army contract to build a second-generation satellite-based military vehicle tracking system. Comtech's sales fell 31 percent, to $425 million, in the year ended July 31 from a year earlier. Earnings fell 52 percent to $32.4 million.