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August 08, 2007
Jury Convicts CEO in Stock-Option Backdating Case

A jury has found former CEO of Brocade Communications Systems Gregory L. Reyes guilty of securities fraud involving a scheme to backdate options grants to the company's employees.

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The jury convicted Reyes on one count of conspiracy, four counts of securities fraud, four counts of lying to accountants, and one count of false books and records. The guilty verdicts followed an eight week jury trial before U.S. District Court Judge Charles R. Breyer.

Federal prosecutors alleged that Reyes, 44, of San Jose, California, schemed to price option grants to Brocade employees by using historical stock performance data to pick low prices while backdating documents to hide when the options were actually granted. By this scheme, Reyes enabled Brocade to avoid recognizing compensation expenses that would have reduced the company's reported net income, prosecutors alleged.

The jury's verdict recognized that backdating option grants with an intent to deceive as done in this case is a crime," says U.S. Attorney Scott N. Schools. "Such backdating can result in overstating earnings and misleading potential investors. Shareholders, large and small, rely on the accuracy of the information provided to them by public companies like Brocade. It remains one of this office's top priorities to prosecute securities fraud and manipulation when it occurs."

Reyes is scheduled to be sentenced before Judge Breyer on November 21, 2007. The maximum statutory penalty for each count is a term of imprisonment of up to 20 years and a maximum fine of $5,000,000.

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