| FOR IMMEDIATE RELEASE January 16, 2008 WWW.USDOJ.GOV/USAO/CAN |
SAN FRANCISCO: The United States Attorney's Office announced today that Gregory L. Reyes, the former CEO of Brocade Communications Systems, Inc. of Saratoga, California, was sentenced to 21 months in prison and ordered to pay a $15 million fine for securities fraud stemming from his scheme to backdate stock options at Brocade.
After an eight-week trial, Mr. Reyes was convicted by a jury on August 7, 2007, of one count of conspiracy, four counts of securities fraud, four counts of lying to accountants, and one count of false books and records relating to the scheme. During the trial, evidence showed that Mr Reyes, 45, of San Jose, California, schemed to price option grants to Brocade employees by using historical stock performance data to pick low prices while backdating the grant minutes to hide when the options were actually granted. By this scheme, Mr. Reyes enabled Brocade to improperly avoid recognizing compensation expenses that would have reduced the company's reported net income. The evidence also showed that Mr. Reyes obstructed justice by lying to the Court in order to sever his trial from that of his co-defendant, former Brocade VP of Human Resources Stephanie Jensen, who was subsequently convicted as well.
The sentence was handed down by United States District Court Judge Charles R. Breyer following the defendant's conviction on a total of 10 counts in violation of 18 U.S.C. § 371 (Conspiracy); 15 U.S.C. §§ 78j(b), 78ff and 17 C.F.R. § 240.10b-5 (Securities Fraud); 15 U.S.C. §§ 78j(b) and 17 C.F.R. § 240.10b-5 (False SEC Filings); 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5), and 17 C.F.R. § 240.13b2-1 (Falsifying Books, Records, and Accounts), and; 15 U.S.C. § 78m(b)(2)(B) and 17 C.F.R. § 240.13b2-2 (False Statement to an Accountant). Judge Breyer also sentenced the defendant to a two-year period of supervised release. Mr. Reyes will remain on bail pending appeal.
Assistant United States Attorneys Timothy P. Crudo and Adam A. Reeves, who together prosecuted the case, commented that AThis sentence recognizes the seriousness of the defendant's crime. As Judge Breyer stated, the integrity of the capital markets in this country is fundamentally grounded on the honesty of executives of public companies, and when they falsify a company's books and records and lie to auditors, regulators, and shareholders, there are real consequences to real victims, as there were here. The substantial prison sentence and fine should serve to deter similar corporate fraud in the future.
The prosecution is the result of an investigation by the Federal Bureau of Investigation and the United States Securities and Exchange Commission.
Further Information:
Case No. C 06-00556 CRB
A copy of this press release may be found on the U.S. Attorney’s Office’s website at www.usdoj.gov/usao/can.
Electronic court filings and further procedural and docket information are available at https://ecf.cand.uscourts.gov/cgi-bin/login.pl.
Judges’ calendars with schedules for upcoming court hearings can be viewed on the court’s website at www.cand.uscourts.gov.
All press inquiries to the U.S. Attorney’s Office should be directed to Joshua Eaton at (415) 436-6958 or by email at Josh.Eaton@usdoj.gov.