A third former Brocade Communications Systems executive faces federal charges related to stock options backdating, just 10 days after the firm's former CEO became first person in the U.S. convicted on backdating charges.
The U.S. Securities and Exchange Commission (SEC) filed fraud charges Friday against Michael Byrd, former chief financial officer and chief operating officer of Brocade, alleging that he failed to intervene as he should have to stop illegal accounting activity to hide the cost of stock options backdating from investors.
"We believe he turned a blind eye to misconduct by senior executives and signed off on fraudulent financial statements," said Marc Fagel, associate regional director of the SEC's San Francisco regional office, in a statement. Brocade, a maker of storage networking equipment, has its headquarters in nearby San Jose, California.
Former CEO Gregory Reyes was convicted Aug. 7 in U.S. District Court in San Francisco on fraud charges related to his role in backdating stock options, even though he never financially benefitted from his actions. He awaits sentencing. A former human resources manager at Brocade, Stephanie Jensen, still faces trial on similar charges filed against her in 2006.
Stock options backdating itself isn't illegal, but failing to accurately account for the expense and disclose it to shareholders amounts to securities fraud.
The SEC complaint alleges that Byrd was not only aware of improper accounting, but that he also personally benefitted from backdating.
"Byrd himself received a backdated option grant after becoming the company's chief operating officer in 2001, and filed a disclosure statement with the SEC falsely stating that the options had been granted on an earlier date," the SEC stated.
A Brocade spokeswoman said the company would have no comment on the charges.