December 27, 2007 Update on Commentary (see below, December 10 post by this writer.
Just before Christmas, CEO Gregory Reyes received his gift for the season — the federal cour postponed his sentencing (“indefinitely, says the Associated Press)and a hearing is set for January 9 for a motion for new trial. The “opening victory” for the federal government in pursuing the backdating options cases by boards and CEOs occurred in August when CEO Reyes was convicted on 10 felony counts. But winning these cases will not be easy.
Turns out a Brocade financial executive (Elizabeth Moore) apparently recants her testimony against the CEO. She first told jurors that her staff did not know about backdating because they were misled or deceived by the CEO. Not good for the defense team.
Then, in December, as the CEO awaited his fate (could be up to 20 years sleeping on a government bed), a legal publication reported that Ms. Moore was telling people her testimony was not accurate — apparently she and members of her staff did know about backdating. True? Not true? And, reported “The Recorder,” none of those who knew about the backdating practice or were involved thought there was anything wrong with it. (We’ve commented before about Silicon Valley execs and boards thinking that certain securities and investor protection rules didn’t apply to their new ways of doing business.)
This affair is not over, even if a new trial is won by the CEO’s defense team. A former CFO of Brocade is charged by federal prosecutors with helping to backdate millions of dollars’ worth of options. (May be an esoteric argument to some, but this is shareowners’ money in the end.) Feds say practice went all the way back to 2000 — necessary, most likely, because of the collapse of tech stock share prices.
The former head of HR of Brocade was also found guilty on two counts and faces up to 20 years in prison.
Question for 2008 is: Where do the SEC and Department of Justice probes / prosecutions for backdating options go in the new year? Stay Tuned first to the Brocade proceedings in San Francisco. May be bellwhether case that determines pace (and outcomes) of these slow-moving, cautiously-assembled legal matters.
Hank Boerner
Editor – Accountability Central
