A jury has found former Brocade Communications Systems CEO, Gregory Reyes, guilty of charges related to the company's backdating of stock-option grants.
Reyes was charged last year with falsifying documents such as meeting minutes and financial documents to make it appear that stock options were granted at a time when the price of shares of Brocade's stock was low.
The former Brocade CEO was found guilty Tuesday on all 10 charges brought by federal attorneys in the case, including charges of securities fraud, conspiracy, and of falsifying financial records. He now faces as many as 20 years in prison and US$5 million in fines on some of the counts.
The conviction is the Department of Justice's (DOJ's) first relating backdating.
"He was involved in a scheme to backdate stocks and not to record the costs," assistant attorney with the US Department of Justice, Tim Crudo, said in a press conference, held after the verdict. Reyes' sentencing hearing is scheduled for Nov. 21.
Brocade has already restated its 1999 to 2004 results because of accounting issues related to these grants.
This practice of back-dating stock option grants has come under intense scrutiny over the past few years. Many Silicon Valley companies including Apple Computer, McAfee, Sycamore Networks and Rambus, have been under investigation for their stock option practices around the late 1990s, a time when technology companies competed fiercely for top executive talent.
Backdating may have helped companies like Brocade attract employees, but it also cost investors millions of dollars, the government says.
Reyes' conviction has no binding to other backdating cases pending, attorney with the DOJ, Scott Schools, said. All cases stand on their own merit, Schools said, attorney with the DOJ.
The conviction shows that backdating charges are provable, Schools said. The department is confident it will be able to file charges against others involved in securities fraud, Schools said. "There are tons of paper to look through before deciding to file charges," Schools said.
The US Federal Bureau of Investigation supported the investigation until it the case was ready to go for indictment, Schools said. The DOJ also received assistance from the SEC in the investigation.
Reyes is disappointed at a verdict, but will continue to fight until exonerated, his lawyer, Richard Marmaro, said in a statement.
"Greg did not enrich himself or gain personally from Brocade's stock option granting practices, and the government never even accused him of that," Marmaro said.