The government has been trying to win a number of backdating options cases, and it appears this victory could land Reyes in jail, according to news reports.The government was not able to win in a backdating case against Irvine, CA-based computer chip maker Broadcom, whose case was thrown out of court in December 2009.Gregory Reyes, ex-CEO of Brocade Communications and former owner of the San Jose Sharks, was found guilty by a federal jury on March 26 of intentionally backdating stock options for the benefit of employees and himself, according to the .Reyes, the former chief executive of the San Jose, CA-based data center infrastructure company, was found guilty on eight counts, including securities fraud and making false statements; however, he was acquitted on the charge of conspiracy.But his conviction was reversed last year by the 9th Circuit.Jensen was sentenced to four months in jail and fined .25 million for her role in Brocade backdating. And it was a total fraud." The defense admitted that backdating and accounting mistakes took place, but argued that Reyes was not alone and did not knowingly commit criminal activity."In his second trial, Reyes' attorneys made what legal experts said was a potentially risky decision: They opted not to call any witnesses in his defense, arguing instead that the government had failed to prove its case," wrote Brandon Bailey of the . Bailey of the "Citing evidence that Brocade board members and financial officers were also aware of the backdating, or even took part in it, [defense attorney Stephen] Neal argued that Reyes relied on the finance officials to ensure that Brocade was complying with complex and confusing accounting rules. District Court in San Francisco was a major victory for the government and is expected to stoke the pursuit of other executives for backdating.
"Options backdating has always been fairly well removed from the typical securities fraud involving falsified accounting records or insider trading, the type of conduct that juries can easily see is improper," wrote professor Peter J.
Henning of Wayne State Law School in a blog about the Broadcom case going awry for the government. There were a number of factors, including damning testimony from witnesses who said former Brocade human resources executive Stephanie Jensen told executives not to send e-mails to each other or document anything about options backdating because their CEO, Reyes, did not want a paper trail.
This is the not the first case brought by the government against Reyes, who had been found guilty on 10 counts of backdating options in 2007, where he was fined million and sentenced to 21 months in prison.
On appeal, that decision was overturned on the grounds the prosecution "made a false assertion of material fact to the jury during closing arguments," wrote .
"Gregory Reyes began to intentionally backdate the option grants. During the three-week trial, prosecution witnesses testified that Brocade reported annual profits in 20 when the company's backdating expenses should have led the company to report a net loss of more than 5 million in each year.
Gregory Reyes, the former chief executive of Brocade Communications Systems Inc., was convicted of securities fraud in the first criminal trial over the backdating of stock options.