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June 24, 2010

Backdating nets former Brocade CEO sentence of 18 months

In a day filled with federal white-collar news, here is one more story of note from California's federal courts: a "federal judge sentenced former Silicon Valley executive Gregory Reyes to 18 months in prison and fined him $15 million Thursday after a jury at a retrial convicted him of concealing the backdating of stock options." Here are more of the specifics:

Reyes, former chief executive officer of Brocade Communications in San Jose, was initially found guilty in 2007 of misleading stockholders and federal regulators about the value of stock options issued to company employees.

It was the nation's first criminal prosecution over securities backdating, the practice of increasing the value of an option to buy company stock by altering the grant date to coincide with the date of the lowest stock price. Backdating is legal, but misrepresenting the options in public reports, and thus overstating the company's net income, is a crime.

A federal appeals court overturned Reyes' convictions last year, saying prosecutors had falsely told the jury that Brocade's finance department was unaware of any backdating. A second jury convicted him in March of nine felony charges of securities fraud and making false statements while acquitting him of conspiracy....

Prosecutors asked Breyer for a 37-month sentence and a $33 million fine, saying evidence since Reyes' first trial has shown his actions harmed more than 1,200 shareholders. Defense lawyers argued for probation and a modest fine, citing Jensen's two-month sentence and Reyes' payment of $12.5 million in related civil suits.

June 24, 2010 at 09:47 PM | Permalink


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