Backdating Conviction Thrown Out Amid Misconduct Charges

August 19, 2009 ( - A federal appellate court has dismissed the conspiracy and fraud conviction against former Brocade CEO Gregory Reyes after finding that prosecutors lied during closing arguments.

A news report in The Recorder said the 9 th U.S. Circuit Court of Appeals ordered a new trial in the stock option backdating case because of what the court said was prosecutorial misconduct. Reyes was convicted of conspiracy and fraud in August 2007 for backdating employee stock options, sentenced to 21 months in prison, and given a $15 million fine (see Ex-Brocade CEO Gets Fine, Jail Term ).

The appellate panel upheld the conviction of former Brocade HR chief Stephanie Jensen, but ordered her sentence reduced, The Recorder said.

Prosecutors had argued that employees in Brocade Communication Systems Inc.’s finance department didn’t know about the backdating, bolstering the government’s case that Reyes was masterminding the scheme. However, finance department officers had told the FBI they knew what was going on, and the Securities and Exchange Commission was pursuing civil charges against Brocade’s former CFO, the news report said.

“Deliberate false statements by those privileged to represent the United States harm the trial process and the integrity of our prosecutorial system,” wrote Circuit Judge Mary Schroeder, in the opinion. “We do not lightly tolerate a prosecutor asserting as a fact to the jury something known to be untrue or, at the very least, that the prosecution had very strong reason to doubt. There is no reason to tolerate such misconduct here.”