Brocade stock backdating trial gets underway
Scheme was "simple, ingenious and a total
By Julia Cheever
November 27, 2007
The second federal trial in the nation in a stock options backdating
case began in San Francisco yesterday with a defense attorney
telling jurors that a former Silicon Valley executive had no criminal
Defense attorney Jan Little said former Brocade Communications
Systems Inc. vice president Stephanie Jensen "never for one
second thought the documents were false or wrong, let alone illegal."
Jensen, 49, of Los Altos, was vice president for human resources
of the San Jose-based computer networking company from 1999 to
She faces one count of conspiracy to falsify company books and
one count of falsifying books.
Her trial in the court of U.S. District Judge Charles Breyer
is expected to last about two weeks. Jurors heard opening statements
from prosecution and defense attorneys and then began hearing
from prosecution witnesses.
Stock options are used as a compensation or recruiting tool and
enable employees to buy company stock. Putting an earlier date
on an option allows an employee to buy shares at a lower price
and thus a greater profit.
Backdating is not illegal in itself, but it is illegal to fail
to record the practice as a compensation expense in company books.
Little told jurors that Jensen was following an established company
procedure and was obeying instructions from her boss, former Brocade
Chief Executive Officer Gregory Reyes, when she prepared options
with earlier dates.
But prosecutor Adam Reeves said in his opening statement that
federal attorneys intend to prove that Jensen knew the backdating
was wrongful and tried to hide it.
Reeves said an alleged backdating scheme by Reyes and Jensen
was "simple, ingenious and a total fraud."
Reyes, 44, of Saratoga, is the only other person in the nation
to have gone to trial thus far in a federal backdating case. He
was convicted in Breyer's court in September of 10 counts including
securities fraud, conspiracy and falsifying company records and
is awaiting sentencing.
The U.S. Justice Department and U.S. Securities and Exchange
Commission have investigated several dozen corporations in a backdating
probe. Prosecutors say federal criminal charges have been filed
in a "handful" of those cases.
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