A former Silicon Valley chief executive was convicted today by a federal jury in San Francisco of nine out of 10 counts in a stock options backdating case.
Gregory Reyes, 47, a former chief executive officer of Brocade Communications Inc. of San Jose, was found guilty by the jury in the court of U.S. District Judge Charles Breyer of nine counts of fraud and false statements.
The counts included securities fraud, submitting false filings to the U.S. Securities and Exchange Commission, falsifying company records and making false statements to accountants between 2000 and 2004.
Reyes was acquitted of a 10th count of conspiracy to commit securities fraud.
Breyer will sentence Reyes on June 24.
Reyes, a Saratoga resident and former part-owner of the San Jose Sharks ice hockey team, was chief executive officer of Brocade, a data storage networking company, from 1998 to 2005.
The trial was his second on the charges. In an earlier trial in 2007, Reyes was convicted of all 10 counts, but the conviction was later overturned by a federal appeals court on the ground that a prosecutor misled jurors during closing arguments.
Defense attorney Stephen Neal said after the verdict that he will file a motion seeking a new trial and will also appeal if necessary.
U.S. Attorney’s Office spokesman Jack Gillund said, “We would like to thank the jury for the time they spent with the case.”
Backdating is the practice of allowing 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.
Backdating in itself is not illegal, but it is a crime to fail to disclose it as an expense in company records and SEC filings.
Reyes’ earlier trial was the first in the nation to be held in connection with a probe of stock options backdating by the U.S. Justice Department and SEC.
The second was that of Stephanie Jensen, a former Brocade vice president for human resources. Jensen was convicted in Breyer’s court in late 2007 of one count of conspiracy and one count of falsifying books and was sentenced to two months in prison and a $1.25 million fine. Her conviction was upheld on appeal.
The Reyes jury reached its verdict on the fourth day of deliberations in a five-week trial.
Defense attorneys maintained during the trial that Reyes didn’t intend to do anything illegal. Neal contended during his closing argument on Monday that an accounting rule governing backdating “was confusing and unclear.”
The defense chose not to present defense evidence and made its case only through cross-examination of prosecution witnesses and the closing argument.
The prosecution and defense agreed that Reyes personally gained $1.9 million from exercising stock options granted to himself.
