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January 16, 2008

Backdating CEO gets 21 months

As detailed in this Bloomberg report, former Brocade Communications CEO "Gregory Reyes, the first CEO convicted by a jury for stock options manipulation, was sentenced to 21 months in prison and ordered to pay a $15 million fine."  Here are more details:

The sentence today by U.S. District Judge Charles Breyer in San Francisco was less than the 24-to-30 month term he said was the maximum under law and the 33-month term prosecutors sought. The judge said he took into account Reyes's contributions to charity in giving the lesser sentence.  The case was about "the failure of a CEO of a publicly traded company to honestly disclose financial information,'' Breyer said.  "It is about lying to his company.''...

Reyes wept as he read a statement to Breyer apologizing for his conduct.  "I'm sorry,'' he said.  "There is much that I regret.  If I could turn back the clock, I would.  There are many things I would do differently.''

Reyes's lawyers asked for a sentence of no more than nine months in a halfway house followed by four months of home confinement with no restitution, according to court filings.  They said a stiffer punishment was unwarranted because Reyes hadn't personally profited from backdated stock options, investors didn't suffer losses and his reputation and family have already been damaged by his legal battles.

During the hearing, Breyer said Reyes deserved more than the minimum sentence because he obstructed justice when he said in a declaration that he didn't backdate options. In sentencing Reyes to less than the maximum, the judge said he was struck by praise given Reyes in 400 letters submitted by his supporters.  "Before this incident occurred, he acted in a way with respect to others, to help the less advantaged people,'' Breyer said.

In response to this press account, I cannot resist wondering whose idea was to have Reyes's statement talk about turning back the clock.  Isn't that just what got him into trouble in the first place?

January 16, 2008 at 05:15 PM | Permalink


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Tracked on Sep 21, 2009 9:53:28 AM


Hey Prof! The more interesting aspect of this case is that Judge Breyer found that there was no calculable loss due to Reyes' conduct and rejected the government's argument that the stock equity loss on the day the company announced Reyes' conduct should be used (or, in the alternative, a loss based on the company's tax and penalty costs).

Posted by: dweedle | Jan 17, 2008 9:57:04 AM

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