Friday, June 29, 2007
The first options backdating criminal prosecution to go to trial seems to be quite a bumpy road out in Baghdad-by-the-Bay -- San Francisco. Gregory Reyes, the former CEO of Brocade Communications, is accused of securities fraud for his role as a committee-of-one who decided on options awards to employees, including new hires, that involved backdating of a number of the grants. There was a bit of a stir at the start of the trial when one of the first witnesses, a human resources employee at the company, testified that at one time Reyes said, "It's not illegal if you don't get caught" (see earlier post here). While U.S. District Judge Charles Breyer allowed the testimony to come in, according to Justin Scheck on the CAL LAW blog Legal Pad (here), the witness showed a distinct lack of memory and some rather nettlesome behavior in responding to questioning. In describing her testimony, Justin opines that she "is an incredibly bad witness." Her lack of memory in other areas may well negate the harm to Reyes from recounting his pithy comment on what constitutes illegal conduct.
While that may not be all that helpful to the government, Reyes' defense counsel, Richard Marmaro, has apparently fallen well out of Judge Breyer's favor. The defense has objected to what it views as the Judge's bias in conducting the trial and reacting to witnesses. As recounted on the estimable Wall Street Journal Law Blog (here), Judge Breyer rejected what was by his count the "third or fourth" mistrial motion, all coming in the first five days of trial. Among other things, the Judge told Marmaro, "If you want to turn this into a popularity contest, so be it. I can’t try the case to please friends, associates and summer associates at Skadden.” Of course, those associates are making more than most federal judges and many of us lowly law faculty, although I think we have much better jobs. These aren't the types of fireworks one would expect in a trial about the former CEO's knowledge of the proper tax and accounting treatment of options and the recording of employee compensation. (ph)