Tuesday, August 8, 2006

Challenging the Brocade Options-Timing Charge

Federal prosecutors filed the first criminal charge from the various stock options-timing investigations against the former CEO of Brocade Communications, Gregory Reyes, and a human resources executive, Stephanie Jensen, on July 20.  Rather than seeking a grand jury indictment at the time, however, prosecutors chose to proceed by issuing a criminal complaint, which contains a general description of the alleged misconduct filed in the name of an FBI case agent working on the investigation.  Reyes has filed a motion to dismiss the complaint (brief available below), arguing that the government's complaint does not adequately allege the elements of securities fraud, the only crime charged, by not identifying the basis for the specific intent to defraud. 

A hearing is scheduled for Wednesday, August 9, on the motion to dismiss, and if the complaint survives then a preliminary hearing is scheduled for August 16 to determine whether there is probable cause for the charge.  Proceeding by way of criminal complaint is uncommon in white collar crime cases in which a defendant has not agreed to a plea bargain because the preliminary hearing requires the government to give a preview of its case and open up one or more of its witnesses to cross-examination by the defense.  Under Federal Rule of Criminal Procedure 5.1(a), the preliminary hearing requirement is obviated if a grand jury returns an indictment.  I suspect the motion to dismiss, even if granted, will not slow the case because prosecutors are likely to obtain a grand jury indictment rather than go through a preliminary hearing.  Look for some further movement before August 16 to shift the case from a criminal complaint to an indictment. (ph)

Download reyes_motion_to_dismiss_complaint.pdf


Fraud, Prosecutions, Securities | Permalink

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