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

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