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Brocade ex-CEO sentenced for stock options backdating

[JURIST] A federal judge in San Francisco sentenced former Brocade Communications Systems [corporate website] CEO Gregory Reyes Wednesday to 21 months in prison and imposed a $15 million fine for backdating stock options [SEC complaint, PDF]. Judge Charles Breyer stayed the sentence pending an appeal. A federal jury found Reyes guilty [JURIST report] in August 2007 of conspiracy, securities fraud, lying to accountants, and keeping false books for backdating employee stock options to increase employee profits on trades. In December 2007, lawyers for Reyes filed a motion for a new trial [PDF text] after the prosecution's key witness recanted her testimony, but Breyer rejected it on grounds that any new statements she might have made would probably not have changed the trial's outcome. Breyer's November 2007 sentencing order [PDF text] indicated the prison term would range from 15-21 months. Reuters has more. The San Jose Mercury News has local coverage.

The practice of backdating includes setting an option-holder's stock price at a day when stock prices were low instead of the price on the day the option was granted. Although the practice itself is not illegal, it can become so if proper records are not kept to account for it. Reyes' case was the first stock-options backdating case to go to trial [AP report], but the US Justice Department (DOJ) has charged at least 12 corporate officials for backdating, all stemming from a 2006 DOJ securities fraud probe. In January 2007, the US Attorney's office in San Francisco opened a separate criminal probe [JURIST report] into the option backdating practices of Apple, Inc. [corporate website]. Although charges against CEO Steve Jobs are unlikely, the Securities and Exchange Commission [official website] filed a complaint [PDF text] against former Apple General Counsel Nancy Heinin for allegedly backdating two 2001 stock option grants.

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