Former Brocade CEO Convicted of Securities Fraud in Options Backdating Trial

By Aaron Poehler

Published on August 09, 2007

Reyes, the former chief executive of Brocade Communications Systems Inc., was convicted of all charges, including falsifying books, records, and accounts; conspiracy to commit securities fraud; mail fraud; and making false statements.

Because Reyes is the first executive to face criminal charges following a federal probe into stock options backdating practices at many US companies, his trial was seen by many as a possible indicator of the outcome of many other such pending cases.

Reportedly, the Justice Department and the SEC have been considering taking similar action against executives at several companies where similar issues have been acknowledged, including Apple, Broadcom, and KLA Tencor. Over 200 companies to date have been investigated regarding stock options backdating practices.

Stock options backdating is a practice of awarding stock options backdated to a time when a company’s stock price was relatively low in order to maximize the recipient’s potential profit. The practice itself is not illegal as long as properly accounted for and disclosed.

Sentencing has been set for November 21. Though Reyes did not profit personally from his actions, he could face up to 20 years in prison and a $5 million fine.

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