John Paczkowski

Recent Posts by John Paczkowski

Former Brocade CEO’s Next Options: Prison Scrubs in Orange or Institutional Gray

scrubs.jpgThe hammer has finally fallen on Greg “it’s not illegal if you don’t get caught” Reyes. Yesterday afternoon, a jury found the former Brocade Communications Systems CEO (and consultant) guilty on ten felony counts of securities fraud in the nation’s first criminal trial over the backdating of stock options.

Reyes was charged last year with “routinely backdating stock options grants to give employees favorably priced options without recording necessary compensation expenses. From 2000 through 2004, prosecutors claimed, Reyes “used the virtually unchecked authority given to him to grant ‘in the money’ options to employees by falsifying in the options documentation the date on which the grants were made and thereby granting the options with below-market strike prices.” In doing so, they argued, he defrauded Brocade shareholders and violated generally acceptable accounting rules.

And it seems the jury called to hear the case agreed. Apparently, it too found the low-priced grants Reye’s made in committee-of-one “meetings with himself” a little bit more than suspicious.

Reyes could face a decade or more in prison for his misdeeds, which should put the fear of God into the dozens of other corporate executives who are under investigation by the Justice Department and the Securities and Exchange Commission in connection with backdated options. “This is a pretty big win for the government,” former federal prosecutor Peter Henning told Bloomberg. “It may well encourage more cases or push some investigations forward.”