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September 23, 2007

Interesting article on backdating sentencing issues

Thanks to law.com, everyone can get an early look at this interesting sentencing article from Monday's issues of The Recorder, which is entitled "Prosecutors Seek Tougher Sentencing Rules for Former Brocade CEO: Preliminary brief focuses on backdating's later effects at Brocade, which would lead judge to use stricter guidelines."  Here is how it begins:

As the stock option backdating scandal has unfolded, defense lawyers have sounded a familiar refrain: No one got hurt.  Prosecutors won guilty verdicts on 10 counts against backdating poster boy Gregory Reyes in August.  But they still need to explain just who it was he hurt, and how much.

Under the sentencing guidelines, the penalty for financial fraud depends on the magnitude of the loss. In a preliminary sentencing brief filed in Reyes' case Friday, prosecutors laid out the numbers: Reyes cost investors and the company $12 million -- $7 million the company paid in SEC fines, $3 million paid in taxes owed by employees who unknowingly got backdated options, and $2 million, representing the one-day loss to investors when the company revealed its backdating problems. Those numbers pale in comparison to the more than $300 million in earnings that Brocade Communications was forced to restate as a result of its options practices.

"They're taking a more conservative approach," said Peter Henning, a Wayne State University Law School professor. "The government is very much focusing on how much money was taken out of people's pockets." The prosecution is also recommending that Judge Charles Breyer apply current sentencing guidelines, arguing that Reyes' crimes continued until 2004, when harsher penalties were put in place for financial fraud. 

Although no sentence was recommended in the preliminary brief, criminal lawyers speculate that under current guidelines, the prosecution's count of the losses would call for about 10 years in the slammer for Reyes....  Sentencing is set for Nov. 21.

September 23, 2007 at 08:17 AM | Permalink


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