June 4, 2008
Brocade and Stock Options Backdating
Late Monday, Brocade Communications Systems, Inc., agreed to pay the plaintiffs in a class-action lawsuit $160 million to settle allegations the network equipment maker injured investors by backdating stock options between 1999 and 2004. Arkansas Public Employees Retirement System filed the suit. In summer 2006, Brocade's former chief executive, Gregory Reyes, and former VP of human resources, Stephanie Jensen, became the first executives criminally charged over the practice and were later convicted. Brocade had agreed in May 2007 to pay $7 million to settle allegations by the Securities and Exchange Commission of civil fraud accompanying options backdating. The SEC settlement was notable for its omission of a condemnation of "spring-loaded" options--options issued just before a company announces good news. Critics do not like the practice but it is not illegal. A new set of rules in 2006 heightens disclosure required by the practice however.
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