Greg Reyes, former chief executive of data storage services provider Brocade Communications Systems, has been found guilty on ten counts of securities fraud and conspiracy to mislead investors and regulators.
Reyes became known for his aggressive rejection of the allegations about him, and for his refusal to consider a settlement course. Scores of other Silicon Valley CEOs and executives have been investigated for similar activities. Reyes, though, became high-profile for his defiance and abrasive style. He was charged last year for backdating hundreds of employee stock grants in 2001 and 2002 and documents to hide and inflate Brocade’s financial results. According to a Bloomberg report from the courtroom:
Federal prosecutors told the jury that Reyes intentionally misled shareholders from 2000 to 2004 by a “systematic practice of cherry-picking low stock prices” through the backdating of grants and failing to properly account for them, making Brocade appear more profitable than it was.
The San Jose Mercury News’ most recent past coverage here.
Normally, a company gives stock options to employees as a form of compensation whereby stock option holders can purchase future company stocks, but at the price of that day’s stock. The options holder can wait for the stock to go up in value, then purchase company stock at the lower original price instead of for the higher price that the stock is trading on. The employees can then sell this stock at the higher price, profiting from the increase in price since the option was originally granted.
Earlier information on the case here.