Legal News

A Reyes of Sunshine: Brocade CEO?s Backdating Conviction Overturned

By Ashby Jones

To quote the legendary chanteuse, Alanis Morrisette: “Isn’t it ironic?” We’d gone many many months without giving a whit of thought to stock-options backdating, and lo and behold, today we get a veritable flood of news.

The big news first. Greg Reyes (pictured), the former CEO of Brocade who was convicted in 2007 on charges related to stock-options backdating got a huge dose of good news today: His conviction was tossed aside by the Ninth Circuit, which ordered a new trial. Click here for the opinion; here and here for early reports from Bloomberg and the San Jose Mercury-News, respectively.

The reason behind the ruling: prosecutorial misconduct. We sorta foreshadowed this in May when we blogged about the appellate hearing: The judges on the panel, especially Philadelphia federal judge Louis Pollack, sitting by designation, ripped into the government’s lawyer over why the prosecutor who delivered the closing argument at trial, assistant U.S. attorney Adam Reeves, asserted that no one in the Brocade finance department knew about the Reyes backdating, an assertion that conflicted sworn testimony. The contention, stated said WilmerHale’s Seth Waxman, arguing for Reyes, supported the notion that Reyes had intent to commit fraud.

And it’s for precisely that reason that the Ninth Circuit reversed the conviction. The ruling wipes out Reyes’ 21-month prison sentence and $15 million fine, both of which were put on hold while his appeal unfolded. The U.S. attorney’s office in San Francisco is now faced with the choice of retrying him or dropping the case.

The U.S. attorney’s office did not respond to requests.

In other backdating news, the WSJ ran a story today on a new study indicating that stock-option backdating may have been more prevalent than originally thought. Click here for that story. According to the story, by Mark Maremont, the following companies were “highly likely” involved in backdating: advertising giant Omnicom Group, retailer Dress Barn, trucking firm J.B. Hunt Transport Services and equipment-rental concern United Rentals Inc.

Officials at the companies had no comment or said they found no evidence of wrongdoing.

Photo: AP

Full post as published by Law Blog - WSJ.com on August 18, 2009 (boomark / email).