Reyes Found Guilty of Fraud

Former Brocade CEO Greg Reyes faces decades in prison after a jury found him guilty of securities fraud today. (See Reyes Charged With Fraud, SEC Gets Formal With Brocade, and Brocade Being Investigated.)

When the the guilty verdict on all 10 counts of stock options backdating was delivered, Reyes glared at the jury while his wife sobbed, according to news reports.

U.S. District Court judge Charles Breyer set sentencing for November 21.

The one-time Brocade supremo now faces up to 20 years in prison for most of the counts against him. He joins a growing list of high-profile executives convicted of fraud in the last few years. (See Ebbers Sentenced: See You in 2030, WorldCom's Sullivan Gets Five Years, and 2006 Storage Winners & Losers .)

Today's verdict was the latest twist in a case that has been closely watched by other firms, both in the IT industry and elsewhere. Dozens of companies have been investigated for options backdating, and Reyes's trial was viewed as a benchmark in the government's efforts to stamp out corporate fraud. (See Backdating Backlash and Vendor Options Draw SEC Scrutiny.)Recent weeks saw mounting speculation that the government lacked a water-tight case against Reyes. Judge Breyer nonetheless ruled that Reyes's fate should be resolved by a jury, after withholding his decision to rule on a defense motion to dismiss the case last month. (See Judge Hangs Fire on Reyes Case and Feds Made Mistake.)

At that point, the trial became something of a test case centered on the question of whether a jury would consider options backdating worthy of serious time in the slammer. (See Reflections on Reyes and Big Bond for Reyes.)

Despite today's verdict, at least one analyst feels there could be more courtroom drama to come. "Something tells me that this story has not finished yet," says Greg Schulz of StorageIO Group. "The judge can also go some different routes on sentencing," he explains, adding that Reyes may not be wearing an orange jump suit just yet.

Judge Breyer is expected to hear a defense motion for a new trial within the next week, according to news reports.

Renowned for his tough management style, Reyes was charged by the U.S. Attorney's Office last July, following an 18-month investigation by the Securities and Exchange Commission (SEC) and the Federal Bureau of Investigation (FBI).The former exec had stepped down as Brocade CEO 19 months earlier, and the company disclosed it would restate earnings after an internal audit into stock compensation procedures. (See Brocade Switches CEOs, Restates .) Reyes was to remain with the company as a consultant, but Brocade severed ties with him in May of 2005. (See Brocade Blasts 'Consultant' Reyes.)

James Rogers, Senior Editor Byte and Switch