[JURIST] The US Court of Appeals for the Ninth Circuit [official website] on Tuesday overturned the conviction [opinion, PDF] of former Brocade Communications Systems [corporate website] CEO Gregory Reyes for backdating stock options [JURIST news archive]. Citing prosecutorial misconduct, the appeals court overturned Reyes's 2007 conviction and sentence [JURIST reports] on conspiracy and fraud charges [complaint, PDF] for backdating stock options. The Ninth Circuit found that the prosecution had made a false assertion of material fact to the jury in the closing argument. The prosecutor told the jury that employees in the finance department did not know about the backdating, when employees had told investigators that they were aware of it. The court found:

Although the government's case was relatively strong, the jury took seven days to deliberate, and the case was complex and technical. Moreover, the prosecutor's statements were particularly prejudicial given that Reyes' defense rested on his delegating his responsibilities to others and reliance on them. At the end there was considerable focus on the issue of what the Finance Department knew. The prosecutor's false statements went directly to this issue. Moreover, the statements were made during closing arguments, both orally and visually, and closing statements from the prosecution "matter a great deal." Deliberate false statements by those privileged to represent the United States harm the trial process and the integrity of our prosecutorial system. We do not lightly tolerate a prosecutor asserting as a fact to the jury something known to be untrue or, at the very least, that the prosecution had very strong reason to doubt. There is no reason to tolerate such misconduct here.

The court declined to "conclude the prosecutor's conduct was so egregious as to require dismissal of the prosecution," and remanded Reyes's case for a new trial. The court upheld the conviction of Reyes' co-defendant Stephanie Jensen, but remanded for resentencing.

The practice of backdating involves 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 in the US, it usually involves a violation of US Securities and Exchange Commission (SEC) [official website] and other federal reporting requirements [SOX backgrounder]. In February, the SEC charged [JURIST report] four executives from Research In Motion (RIM) [corporate website], the company that makes BlackBerry, with stock options backdating and reached a settlement agreement. In June 2008, a federal grand jury indicted [JURIST report] two former executives from the Silicon Vally tech firm Broadcom in connection with a backdating scheme. In October 2007, Mercury Interactive settled [JURIST report] a similar case for a record $117.5 million. In February 2007, the US Department of Justice indicted [JURIST report] the former general counsel of McAfee systems for stock option backdating. In January 2007, the US Attorney's office in San Francisco opened a criminal probe [JURIST report] into backdating at computer maker Apple Inc.