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Ex-Brocade Execs Charged With Fraud

SAN FRANCISCO — The U.S. attorney's office and the U.S. Securities and Exchange Commission (SEC) have separately filed criminal and civil securities fraud charges against the former CEO of Brocade Communications Systems Inc. and another former high-ranking executive with the firm, according to a statement released by the U.S. attorney's office Thursday (July 29).

The charges mark the first formal criminal and civil securities fraud charges brought against any of the dozens of companies that have been implicated in a controversy over historical stock options granting practices. The controversy generally concerns the concept of backdating stock options, retroactively dating them at a time when a company's stock price is relatively low, increasing the potential for profit.

The complaints allege that Gregory Reyes, former president, chairman and CEO of Brocade, and Stephanie Jensen, former Brocade vice president of human resources, routinely backdated stock option grants to give employees favorably priced options without recording necessary compensation expenses. The charges are the result of 18-month investigations by the SEC and the FBI, according to U.S. attorney's office.

Gregory Reyes

Speaking at a news conference at the SEC district office here Thursday, SEC Chairman Christopher Cox, said the SEC alleges that Reyes and Jensen participated in an options backdating scheme for more than four years and that the scheme inflated Brocade's net income by as much as $1 billion in 2000 alone. Cox said the SEC's division of enforcement is currently investigating more than 80 companies nationwide for potential backdating impropriety.

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