Ex-Brocade CEO Reyes Sentenced to 21 Months

He must also pay $15 million fine for stock-options backdating

January 17, 2008

2 Min Read
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Ex-Brocade CEO Greg Reyes has been sentenced to 21 months of jail time and ordered to pay a $15 million fine, in the conclusion of a landmark case regarding stock options backdating.

Reyes was convicted of 10 counts of securities fraud by a California jury in August 2007. He originally faced up to 20 years in jail and at least $100 million in fines, but widespread reports of today's sentencing in San Francisco indicate the judge found cause for leniency, despite condemning Reyes for making misleading statements in court.

Reyes's case became the first and most visible of many cases related to the once-common practice in which execs bought back shares of their firms' stock at an originally low price, in order to sell them at a profit on a later date, after the shares had grown in value.

Though Brocade is hardly a household name to those outside the IT world, Reyes seemed to draw attention, not all of it positive, that made him a poster boy for the government's stock options housecleaning. His tough management style and flamboyant personal spending were legendary. When he stepped down in 2005 after seven years with the company, he demanded -- and got -- an agreement paying him the same amount as a consultant that he'd earned as CEO. It didn't take long for Brocade's board to determine that his services weren't worth the $910,000 pricetag.

Reyes's backdating scheme, which also implicated other execs, including former head of HR Stephanie Jensen (reportedly scheduled to be sentenced in April), forced Brocade to restate financial reports and resulted in an SEC investigation of the company. (See Brocade Switches CEOs, Restates , SEC Gets Formal With Brocade, and Brocade Being Investigated.)It's not known what's next for Reyes. He will probably appeal. And his woes aren't over yet. According to a Wall Street Journal report today, one reason U.S. District Judge Charles Breyer did not order Reyes to pay a higher fine was his expectation that Brocade would sue Reyes later.

A spokeswoman for Brocade today declined to comment on "ongoing litigation issues."

Despite the high-profile case, Greg Reyes has drawn widespread sympathy from a range of sources, including Byte and Switch readers. In a poll last year, only 42 percent of more than 200 respondents felt Reyes's conviction was entirely justified. A slightly higher percentage (44 percent) felt that although Reyes was in the wrong, the maximum sentence of 20 years would be an overreaction.Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.

  • Brocade Communications Systems Inc.

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