Former CEO convicted
of 10 counts in stock options backdating case
By Julia Cheever
August 7, 2007
A former Silicon Valley chief executive was convicted by a federal
jury in San Francisco of all 10 charges filed against him in the
first stock options backdating case in the nation to go to trial.
Gregory Reyes, 44, the former chief executive of San Jose-based
Brocade Communications Systems Inc., was found guilty of securities
fraud, conspiracy to commit fraud and making false statements
about backdating in corporate records and regulatory filings.
His attorney, Richard Marmaro, said he plans to appeal but said
he had no other comment at present.
U.S. District Judge Charles Breyer set sentencing for Nov. 21.
Breyer told Marmaro that any motion for a new trial must be filed
by Aug. 14.
The case was the first to go to trial in a nationwide U.S. Justice
Department probe of the corporate practice of backdating stock
options offered to employees.
Backdating, which enables employees to buy stock at a lower price
and thus a greater profit, is not illegal in itself, but it is
a crime to make false statements about it in corporate records
and filings with the U.S. Securities and Exchange Commission.
Reyes, a Saratoga resident, was chief executive officer of Brocade
from 1998 to 2005.
The verdict came on the seventh day of jury deliberations and
after five weeks of trial. Reyes's wife sobbed quietly in the
courtroom as the verdict was announced. One juror seemed temporarily
overcome with emotion during the verdict.
Marmaro argued to the jury at the close of the trial that accounting
rules on stock options were confusing and prosecutors hadn't proved
Reyes intended to deceive investors.
But prosecutors alleged that Reyes knew what he was doing and
routinely falsified board minutes over a period of four years.
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