Former Silicon Valley executive sentenced,
fined $15 million
By Julia Cheever
January 16, 2008
A former Silicon Valley executive was sentenced in federal court
in San Francisco today to a year and nine months in prison and
fined $15 million for fraud and false statements in backdating
Former Brocade Communications Systems Inc. Chief Executive Officer
Gregory Reyes, 45, of Saratoga, was the first corporate official
in the nation to go to trial in a stock options backdating case.
U.S. District Judge Charles Breyer said the case was "about
lying" and "about the failure of the chief executive
officer of a publicly traded company to honestly disclose the
financial situation of his company."
Breyer said, "Every time Greg Reyes falsified documents
repeatedly over a three-year period he was lying."
Breyer said, "Only a prison term can adequately reflect
the need for deterrence" of corporate fraud.
The judge allowed Reyes to remain free while he appeals the conviction
Defense attorney Richard Marmaro had asked for a non-prison sentence
of one year and one month, to be served in a halfway house or
home detention. Marmaro said Reyes was a "good and decent
person" who was devoted to the company and its employees
and generous to charities.
Prosecutors, who said Reyes "actively and systematically
lied" to auditors, shareholders and company directors, had
asked for at least two and one-half years in prison, a $41 million
fine and $90 million in restitution.
The judge said he was taking account of Reyes' "extraordinary"
charitable generosity and giving a lower sentence than he otherwise
Reyes headed San Jose-based Brocade, a data storage networking
company, from 1998 to 2005.
He was convicted in Breyer's court in August of 10 counts of
securities fraud, conspiracy to commit fraud and making false
statements in company records and to accountants.
Backdating, used as a recruitment and compensation tool, enables
employees to buy company stock at a lower price and thus a greater
profit. It is not illegal in itself, but it is a crime to fail
to disclose it as an expense in company records and filings with
the U.S. Securities and Exchange Commission.
As a result of a nationwide backdating probe, 150 companies including
Brocade restated their financial reports in 2005 and 2006, according
At least 10 other corporate executives nationwide have been charged
with federal crimes related to backdating.
The only others to have been sentenced thus far are four former
officers who pleaded guilty to various charges. They were given
sentences ranging from probation to a year and a day in prison.
Breyer said those cases were different from Reyes' because those
defendants pleaded guilty and cooperated with the government probe.
Another former Brocade officer, former human resources director
Stephanie Jensen, 49, of Los Altos, was convicted in Breyer's
court in December of conspiracy to falsify company books and falsifying
company books. She is awaiting sentencing.
Former McAfee Inc. former general counsel Kent Roberts is awaiting
trial in federal court in San Francisco on fraud and false statements
charges related to backdating.
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