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
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
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
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