A five-week retrial began in federal court in San Francisco today in the criminal case of a former Silicon Valley chief executive accused of stock options backdating.
Gregory Reyes, 47, former chief executive of Brocade Communications Inc. of San Jose, faces 10 counts of conspiracy, fraud and false statements in connection with alleged backdating of employee stock options at the data storage networking company.
Reyes, a Saratoga resident and early investor in the San Jose Sharks ice hockey team, was found guilty of all counts in his first trial in 2007 and sentenced to one year and nine months in prison.
But the conviction was overturned last year by a federal appeals court, which said prosecutors in the first trial misled jurors by saying that officers in the company’s finance department didn’t know about the backdating.
Backdating is the practice of allowing company employees to buy stock retroactively at a lower price that was in effect at an earlier date and thus to make a greater profit if they sell the shares. The device is used as a way of recruiting and compensating employees.
Backdating in itself is not illegal, 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.
In Reyes’ first trial, prosecutors alleged that he used the practice to benefit other employees.
But in opening statements in the retrial this morning, federal prosecutor Adam Reeves said that Reyes himself benefited from stock options with an intrinsic value of “millions and millions” of dollars.
Defense attorney Stephen Neal told the jury in the court of U.S. District Judge Charles Breyer that the defense will seek to show that Reyes didn’t intend to engage in illegal practices.
Reyes’ first trial in 2007 was the first criminal trial in the United States in a nationwide probe of stock options backdating by the U.S. Justice Department and Securities and Exchange Commission.
Since then, only one other person has been convicted in federal court in San Francisco in connection with backdating.
That person is former Brocade human resources Vice President Stephanie Jensen. She was found guilty of falsifying company books and sentenced to two months in prison and a $1.25 million fine.
Reyes was chief executive officer of Brocade from 1998 until he stepped down in 2005, when the Justice Department’s backdating probe was under way.