Risk Management

Ex-Brocade CEO’s Sentencing Is Put on Hold

Gregory Reyes, seeking a new trial on the basis of a subordinate's recanted testimony, wins an indefinite delay from the federal court.
Stephen TaubDecember 20, 2007

The sentencing of former Brocade Communications Systems Inc. CEO Gregory Reyes has been postponed again — this time indefinitely, while the court hears arguments by defense lawyers seeking a new trial.

According to the Associated Press, a hearing has been set for Jan. 9 on Reyes’s new-trial motion. In August, a federal jury in San Francisco convicted Reyes on all 10 felony counts, giving the government an opening victory in its war against executives implicated in schemes to backdate stock-option grants.

At the time, his sentencing was scheduled for Nov. 21, although it was subsequently pushed back to Dec. 19.

He faces as much as 20 years in prison when he is sentenced.

Earlier this month, Brocade finance employee Elizabeth Moore recanted her testimony against Reyes, according to The Recorder, a law publication. Moore reportedly told jurors originally that people in her department did not know about backdating at Brocade because they had been deceived by Reyes and Stephanie Jensen, who was Brocade’s vice president of human resources. The publication noted that Moore was the only finance employee prosecutors called to the stand, citing a motion filed by Reyes’ lawyers.

However, Moore subsequently told several people that her testimony was inaccurate, according to the account of the motion. The publication noted that Moore knew about backdating at Brocade, as did several of her colleagues in the department, none of whom believed there was anything wrong with it, according to the motion.

According to the report, individuals who have spoken to Moore since the trial have filed declarations on behalf of Reyes’ motion.

In December, Jensen was found guilty in her trial of one count of conspiracy and one count of falsifying books and records. She faces up to 20 years in prison and a maximum fine of $5 million.

According to the San Jose Business Journal, prosecutors accused Jensen of helping falsify documents on stock options offered to new hires at Brocade. However, that paper pointed out that in Reyes’s pretrial statements, which were recently unsealed, Reyes said that Jensen “did not have the authority to choose the date or stock price of options. Only I had that authority, and only I knew when I made my decisions.”

Reyes said at that time that Jensen “never participated in a scheme to defraud Brocade, its board, its shareholders, its auditors, the public” or the Securities and Exchange Commission, according to the report.

Indeed, the San Jose Business Journal noted that Jensen’s attorney, Jan Nielsen Little, said during the trial that Jensen didn’t know the accounting or legal consequences of backdating.

Reyes made these statements in March in a successful attempt to be tried separately from Jensen, according to AP. The wire service said that if the judge determines that Reyes lied in his declaration, the judge could decide that Reyes obstructed justice and add more prison time to his sentence.

In a separate case filed after Reyes’s conviction, the SEC charged the company’s onetime CFO, Michael J. Byrd, with helping to backdate millions of dollars worth of stock-option grants to lure employees to the high-tech company. In the SEC’s complaint, it asserted that Byrd, who retired from Brocade as chief operating officer in 2003, repeatedly disregarded evidence that other senior executives — including Reyes — were improperly backdating stock-option awards as far back as 2000. The commission also alleged that Byrd falsified documents to hide the backdating improprieties, and failed to account for the options correctly in an attempt to avoid the related balance-sheet expenses.

The Justice Department has criminally charged about a dozen executives from different companies for illegally tampering with stock-option awards.

Another former top human resources executive, Nancy Tullos, recently agreed to plead guilty in a backdating scheme at Broadcom Corp.

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