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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