Feds Throw the Book at Ex-Brocade Chief For Backdating

Federal prosecutors scored a guilty verdict yesterday in the first options backdating case to go to trial, securing a conviction that is expected to embolden them to pursue similar cases.

Jurors in Federal District Court in San Francisco convicted the former chief executive of Brocade Communications Systems, Gregory L. Reyes, 44, on 10 counts of conspiracy and fraud.

The verdict ended a five-week trial in which Mr. Reyes was accused of intentionally changing the grant dates for hundreds of stock option awards without disclosing the move to investors.

Sentencing is scheduled for Nov. 21. Under federal sentencing guidelines, Mr. Reyes could face up to 20 years in prison for the most serious charges as well as pay millions of dollars in fines.

The verdict sent shockwaves through Silicon Valley and law offices around the country, which are representing dozens of companies and executives who have been entangled in the widespread scandal.

In the wake of intense media attention, regulators cracked down on more than 100 companies over the unlikely coincidence of stock options being granted again and again to executives and employees on dates when the share price was low — a tactic that guaranteed the maximum profit when the options were later turned into cash.

Backdating is illegal if the company does not properly account for the discounted grants as an expense.

The SEC eventually investigated about 140 companies in connection with the practice, and federal prosecutors filed charges against at least five executives.

http://www.nytimes.com/2007/08/08/business/08brocade.html?
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