Tuesday, August 7, 2007
A federal court jury in San Francisco convicted former Brocade Communications CEO Gregory Reyes on all ten counts related to options backdating at the Silicon Valley company (see San Jose Mercury-News story here). Among the charges against Reyes are securities fraud and mail fraud for engaging in a scheme to defraud Brocade investors and deprive them of the right of honest services. Reyes was represented by Richard Marmaro from Skadden Arps, and the case involved some significant head-butting between Marmaro and U.S. District Judge Charles Breyer, including accusations of judicial bias. These issues are likely to be brought up on appeal.
This case represents a significant victory for federal prosecutors, and may well encourage U.S. Attorney's Offices to pursue charges in other cases. The Reyes prosecution was challenging because the defendant did not "line his own pocket" by receiving any of the backdated options, so a key piece of evidence found in fraud cases to support an inference of intent -- self-dealing -- was missing, yet the jury still returned a guilty verdict on the key securities and mail fraud counts. At a minimum, Reyes' co-defendant, former Brocade human resources manager Stephanie Jensen, whose trial was severed, has to be concerned about her exposure. (ph)