Brocade backdating


22-Jan-2019 08:55

CEO Gregory Reyes was convicted Tuesday of defrauding investors in the first stock options backdating case to go to trial.

The guilty verdict on all counts is an important validation of the Justice Department's options backdating probe, which has so far led to criminal charges against at least 10 executives.

Reyes was seen as an important test of whether a jury considers it a crime deserving of jail time.

Reyes wiped his forehead with handkerchief and glared at the jury as the verdict was announced. His conviction could embolden prosecutors in their ongoing options investigation.

The government has reportedly been looking at filing criminal charges against former executives at Apple Inc., KLA-Tencor Corp. — companies that have all acknowledged stock options shenanigans.

Reyes was charged with 10 felony counts of securities fraud; prosecutors accused him of doctoring company records and lying to investors and auditors about the company's options practices to falsely boost Brocade's profit.

The trial, which lasted six weeks, went to the jury July 30.

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Brocade's former vice president of human resources, Stephanie Jensen, was also charged with 12 counts. The government alleges the two illegally concealed that Brocade was awarding "in the money" grants — or options that already had value when they were given, thus requiring the company to incur compensation expenses.

Two mail fraud charges were later dropped for both defendants. By keeping the charges off the company's financial records, prosecutors argued, the executives misled investors about the true profitability of San Jose, Calif.-based Brocade, which makes switches and software used to connect corporate servers and data storage systems. Attorney Tim Crudo countered that the government doesn't have to prove that Reyes knew which securities laws he was breaking, just that he knew what he was doing was wrong.



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