Federal criminal trial begins
in stock options backdating case

By Julia Cheever

June 18, 2007

The first criminal trial in a nationwide probe of stock options backdating opened in federal court in San Francisco today with a defense attorney saying that his client didn't think he did anything wrong.

Richard Marmaro, a lawyer for former Brocade Communications Systems Inc. chief executive Gregory Reyes, told the jury that Reyes acted in good faith "and never concealed anything from anyone."

The attorney said, "At the time, everyone thought the policy was appropriate."

Reyes, 44, of Saratoga, was chief executive officer of San Jose-based Brocade, a computer networking company, from 1998 to 2005.

Backdating of an option to buy a company's stock is used as a tool to compensate executives and other employees. The change in the option date enables an employee to buy stock at a lower price and thus at a high profit.

Backdating in itself is not illegal, but making false statements about it to investors and regulators is.

Reyes faces 10 counts of conspiracy to commit securities fraud, fraud, making false statements in filings with the U.S. Securities and Exchange Commission and falsifying books and records.

Reyes and a second official, former human resources vice president Stephanie Jensen, are accused in a grand jury indictment of concealing millions of dollars in employee compensation expenses by backdating options between 2000 and 2004.

Jensen is slated to be tried separately at a later date.

Reyes's trial in the court of U.S. District Judge Charles Breyer is expected to last eight to 10 weeks.

Marmaro told the jury that Reyes relied on the advice of company lawyers and auditors in going ahead with the backdating.

He said the former executive took the company from a private company with $24 million in income to a publicly traded firm with more than $600 million in revenue.

Earlier this month, Brocade, without admitting wrongdoing, agreed to pay a $7 million penalty to settle a civil lawsuit in which the SEC accused the company of falsifying documents to conceal backdating.

Copyright © 2007 by Bay City News, Inc. -- Republication, Rebroadcast or any other Reuse without the express written consent of Bay City News, Inc. is prohibited.

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