SAN FRANCISCO – LAWFUEL – The Legal Newswire – United States Attorney Scott N. Schools announced today that Gregory L. Reyes, the former CEO of Brocade Communications Systems, Inc. of San Jose, California, was convicted after trial of one count of conspiracy, four counts of securities fraud, four counts of lying to accountants and one count of false books and records relating to his scheme to backdate options grants to Brocade employees.
The guilty verdicts followed an eight (8) week jury trial before U.S. District Court Judge Charles R. Breyer. This conviction is the result of an investigation by the Federal Bureau of Investigation and the United States Securities and Exchange Commission.
Evidence at trial showed that Mr Reyes, 44, of San Jose, California, schemed to price option grants to Brocade employees by using historical stock performance data to pick low prices while backdating the grant minutes to hide when the options were actually granted. By this scheme, Mr. Reyes enabled Brocade to improperly avoid recognizing compensation expenses that would have reduced the company’s reported net income.
Scott Schools commented, “The jury’s verdict recognized that backdating option grants with an intent to deceive as done in this case is a crime. Such backdating can result in overstating earnings and misleading potential investors. Shareholders, large and small, rely on the accuracy of the information provided to them by public companies like Brocade. It remains one of this office’s top priorities to prosecute securities fraud and manipulation when it occurs.”
Mr. Reyes is scheduled to be sentenced before Judge Breyer on November 21, 2007. The maximum statutory penalty for each count is a term of imprisonment of up to twenty (20) years and a maximum fine of $5,000,000. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
Timothy P. Crudo and Adam A. Reeves are the Assistant U.S. Attorneys who prosecuted the case with the assistance of Paralegal Lilian Arauz.