Brocade Execs Among First to be Charged in Stock Option Probe

July 20, 2006 ( - The Securities and Exchange Commission (SEC) and the US Attorney for the Northern District of California filed criminal and civil charges against former executives of Brocade Communications Systems.

The Wall Street Journal reports that former CEO Gregory Reyes and former Human Resources Vice President Stephanie Jensen are accused of routinely backdating stock options without recording necessary compensation expenses. TheSEC also filed civil charges against former CFO Antonio Canova.

An attorney for Reyes said in the news report, “It is surprising that in an area where the government is investigating at least 60 companies [over stock options], the government would choose to charge Mr. Reyes … All he did was what his board authorized him to do.”

Reyes stepped down as CEO in January 2005; during the same time the company announced it would restate income for prior years because of improper accounting for past options grants, according to the WSJ. After an internal probe found problems with its options grants dating back to at least mid-1999, Brocade restated past results twice last year.

The company said it incorrectly accounted for options issued to new employees on the date they accepted their employment offer rather than on the date they actually started work. It also incorrectly booked options issued to employees who were put on part-time status prior to starting full-time employment.

The Brocade investigation pre-dates the current national probe, which now includes almost 60 companies under investigation. The charges against Brocade were made as a result of the findings of an 18-month investigation.

The Wall Street Journal scorecard with up-to-date information on the stock options probe ishere.