Ex-Brocade CEO convicted
A U.S. court convicted the former chief executive of Brocade Communications Systems Inc of securities fraud on Friday, a victory for the government in its high-profile crackdown on illegal options backdating.
In a retrial, Gregory Reyes — the first and highest profile executive to be accused of illegal backdating — was convicted on nine charges related to securities fraud, but acquitted of one count of conspiracy, a spokesman for the Department of Justice said.
Sentencing for Reyes is set for June 24.
Backdating is the practice of locking in financial gains by retroactively pricing option grants on days a company’s stock price was low, in effect increasing the value of the options. It is not illegal if properly accounted for.
Friday’s ruling was a big win for the government, which has struggled to secure convictions in these type of cases.
In 2007, Reyes was sentenced to 21 months in prison and fined $15 million. But that conviction was overturned in August by the U.S. Court of Appeals for the Ninth circuit, over prosecutorial misconduct.
Reyes’ lawyer, Stephen Neal of the law firm Cooley Godward Kronish, mounted a risky defense by calling no witnesses. He told jurors the prosecution simply had not proven its case against his client.
Attorneys on both sides declined to comment, while Brocade released a short statement after the ruling.
“As a matter of company policy, we will not comment directly on Mr. Reyes’ case. Brocade has already resolved these matters on behalf of the company and we remain focused on running our business,” the company said.
The backdating of stock option grants, used extensively to attract and retain top talent, became a major issue in 2007, with more than 170 companies either investigated by U.S. authorities or conducting internal inquiries into possible manipulation of stock-option grant dates.
Another high profile backdating case winding its way through the court system is against the once high-flying head of KB Home, Bruce Karatz.
Prosecutors have said Karatz schemed to hide from the company and shareholders illegal backdating that resulted in him and others receiving below-market exercise prices for stock options.
His trial opened earlier this month.
Source: Reuters