Among other things, Reyes’ attorneys insist prosecutors misled the jury by suggesting Reyes kept Brocade’s finance executives in the dark about the options, when in fact investigators had been repeatedly told by those executives they were aware of backdating.
Most of the executives did not testify at trial, and one of them recanted her testimony in Reyes’ favor after the trial, but U. District Judge Charles Breyer rejected Reyes’ argument.
Silicon Valley’s stock options backdating scandal may be fading slowly into history, but the government’s chief target is continuing an epic legal battle to erase the stain of being the most prominent local executive convicted of a crime for rigging his company’s options.
In a showdown next week in a federal appeals court in San Francisco, former Brocade Communications CEO Gregory Reyes will present arguments that his 2007 convictions and 21-month prison sentence should be set aside, in large part because of what his high-powered legal team maintains was a government prosecution marked by “foul blows” and misconduct.
(Paul Sakuma/Associated Press/File 2006) SAN FRANCISCO - The former human resources chief for Brocade Communications Systems Inc.
conspired to falsify records to cover up backdating of employee stock-option grants, prosecutors told a federal jury yesterday.
Hiding the backdated stock grants inflated the San Jose, California-based company’s shares because the costs associated with the grants weren’t reported to shareholders or regulators, prosecutors said.
In 2007, Reyes was the first chief executive convicted by a jury in a broad government crackdown on options backdating.Jensen learned Brocade's stock-option practices from Reyes and the company's finance chief, who taught her the process of choosing grant dates for stock options and preparing documents about them weeks and sometimes months later, said Jan Little, Jensen's attorney."She never for one second thought those documents were wrong or illegal," Little said.Stock options allow holders to buy shares later, usually at the trading price on the day the options were granted.Stock options allow holders to buy shares at a later date, usually at the trading price on the day they were granted.Through backdating, companies change the grant date to a day with a lower stock price, giving recipients built-in profits.The convictions marked a dramatic downfall for the 46-year-old Reyes, whose case became a fleeting symbol in the government’s probe of dozens of valley companies accused of the same backdating practices.Now, in court papers, Reyes’ lawyers argue that the government singled out Reyes, a “young CEO with no accounting or public company experience,” leaving the vast majority of executives facing backdating allegations untarnished by criminal prosecutions.“The prosecution did not present a false theory to the jury,” prosecutors wrote. Greg Reyes, the former chief executive officer of Brocade Communications Systems Inc., lost a bid to reverse his conviction for backdating employee stock-option grants and hiding the practice from auditors and investors. Reyes’ first conviction was thrown out by the same appeals court in 2009 because of prosecutorial misconduct. Court of Appeals in San Francisco today upheld the 18-month prison sentence and million fine imposed after his second criminal trial.The three-judge appeals panel said that it found no misconduct in the second trial and that there was sufficient evidence that the backdating was material to investors.