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SEC Gets Formal With Brocade

The Securities and Exchange Commission (SEC)s probe into how Brocade Communications Systems Inc. (Nasdaq: BRCD) accounted for stock options from 2001 to 2004 has gone from an informal inquiry to a formal investigation.

The SEC notified Brocade of its decision to formally investigate late Thursday afternoon. The news is hardly surprising, considering a series of admissions the company made since its CEO Greg Reyes stepped down in January (see Brocade Switches CEOs, Restates ).

Brocade first revealed the SEC and U.S. Department of Justice were conducting a joint investigation last month (see Brocade Being Investigated). As a formal investigation, the SEC now can issue subpoenas for information. Previously, the SEC asked for voluntary information.

Brocade's share price closed even at $4.03. But that's a far cry from the $8.17 price Brocade shares carried in December, shortly before the departure of Reyes.

Brocade reported disappointing sales last quarter, losing market share to major rivals Cisco Systems Inc. (Nasdaq: CSCO) and McData Corp. (Nasdaq: MCDTA). (See Brocade Bungles Quarter, McData: 'We Gained Share', and Cisco's Storage Climbs.) But the mess over its stock options accounting have overshadowed everything else.

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