Former CEO to be sentenced in backdating case

A former Silicon Valley executive is due to be sentenced in federal court in San Francisco Wednesday for his role in a stock options backdating case.

Gregory Reyes, 45, of Saratoga, was chief executive officer of data storage networking company Brocade Communications Systems Inc. of San Jose from 1998 to 2005.

He was the first corporate officer to go to trial in a nationwide U.S. Justice Department probe of the practice of backdating options offered to employees to buy company stock.

Reyes was convicted in August of 10 counts of securities fraud, conspiracy to commit fraud and making false statements in company records and to accountants.

Federal prosecutors have asked U.S. District Judge Charles Breyer to sentence Reyes to at least two and one-half years in prison, impose a $41 million fine and order $90 million in restitution to Brocade.

Prosecutors wrote in a brief filed with Breyer last week that Reyes “secretly manipulated” the normal controls of corporate governance.

They alleged, “Having found the weak spots in the corporation he was entrusted to manage, defendant then actively and systematically lied to the auditors, directors and shareholders of a public company to thwart their proper supervision of the company for a period exceeding four years.”

Reyes' lawyers have countered by urging a sentence of no more than one year and one month, to be served in a halfway house, a fine of substantially less than the $17 million recommended by the U.S. Probation Office and no restitution order.

Defense attorneys argued in court papers that shareholders weren't harmed by the backdating, that Reyes received no personal financial gain and that his motive was to help the company.

The attorneys wrote the Reyes' intent was “to benefit the company and its shareholders by attracting and retaining qualified employees.” Reyes “loved Brocade” and “Brocade employees loved Greg Reyes,” the lawyers maintained.

Backdating, used as a recruitment and compensation tool, enables employees to buy company stock at a lower price and thusa greater profit. It is not illegal in itself, but it is a crime to fail to disclose it as an expense in company records and filings with the U.S. Securities and Exchange Commission.

The restitution sought by prosecutors would be for the company's alleged costs in investigating the backdating, making tax adjustments and paying legal fees in civil lawsuits and criminal probes of employees.

Wednesday's sentencing comes after Breyer last week turned down Reyes' bid for a new trial.

Bay City News

businessBusiness & Real EstateLocal

If you find our journalism valuable and relevant, please consider joining our Examiner membership program.
Find out more at www.sfexaminer.com/join/

Just Posted

Charles Joseph, who is represented by the San Francisco Public Defender’s office, is facing deportation to Fiji. <ins>(Courtesy photo)</ins>
Giving immigrants a second chance after incarceration

Legislation would allow some faced with deportation a chance to challenge their old convictions

The San Francisco Police Department released body camera footage of the alleged assault on Dacari Spiers. (Via SFPD Body Cam)
SF police officer to stand trial for assault over baton beating

A San Francisco police officer who prosecutors say unnecessarily beat a man… Continue reading

Mayor London Breed announced The City’s return to the red tier for COVID-19 precautions at Pier 39 on Tuesday<ins>, March 2, 2021</ins>. <ins>(Kevin N. Hume/S.F. Examiner)</ins>
San Francisco enters red COVID tier, indoor dining to resume

Museums and gyms can reopen with capacity limits

Cole Odin Berggren, community programs director and drum and DJ instructor at Blue Bear School of Music in The City, holds a JackTrip device, which he says has greatly improved students’ experience of making music online. (Kevin N. Hume/S.F. Examiner)
COVID-era musicians beginning to make connections

Software eliminates pesky delay plaguing most systems

Under the new plan, Twin Peaks Boulevard would be reserved exclusively for pedestrians and cyclists until Christmas Tree Point.	(Kevin N. Hume/S.F. Examiner)
SFMTA board approves new plan for Twin Peaks Boulevard

Cuts vehicle-free space by half. Neighbors say crime, vandalism will still abound

Most Read