Brocade Ex-CEO Reyes Sentenced to 21 Months in Prison: EX-BROCADE CEO's FRIENDS STRUCK BY PRISON SEN

Jan 17, 09:13 AM

Jan. 17--A tearful Gregory Reyes was sentenced Wednesday to 21 months in prison for his role in an illegal stock-option backdating scheme at Brocade Communications Systems, the company he once ran.

Reyes also was ordered to pay a $15 million fine.

The tough sentence, longer than had been expected but much less than the maximum for Reyes' crimes, was clearly intended by U.S. District Judge Charles Breyer to warn executives about the consequences of breaking securities laws and lying to investors.

"What this case is really about is the failure of a CEO of a publicly traded company" to fully disclose important financial information, Breyer told the packed courtroom. "It is about lying to his company."

In a tearful plea for leniency -- at one point, Breyer called a five-minute recess to allow Reyes to regain his composure -- the former chief executive vowed to learn from his experience.

"I am sorry. . . . There is much that I regret, and if I could turn back the clock, I would have done things differently. I will try every day from this day to re-earn the trust that was placed in me.

"I've tried to lead a good life. This experience has humbled me in more ways than I can express in words, but I am determined to learn from it."

In exacting detail, Breyer described the way he settled on the tough sentence for Reyes' conviction in the first backdating case to go to trial.

In Reyes' favor were the 400 letters sent to the judge citing

the former CEO's anonymous help to the less fortunate.

"It's only fair to give some recognition for his extraordinary acts of generosity," said Breyer. "He is the essence of what you want to see of an individual to whom much has been given and who was given much."

But he increased the sentence because he thought Reyes had obstructed justice and lied in a related case, involving a court filing by Reyes arguing that his trial be separated from that of Stephanie Jensen, Brocade's former vice president of human resources.

Robert Weisberg, a Stanford University law professor, said Breyer "has come up with a sentence that won't ruin his life but is a pretty sharp deterrent message, no question about it."

The prison sentence, to be followed by two years of supervised release, was stayed pending appeal of the case.

The sentence left the courtroom stunned and hushed. Reyes, 45, embraced his wife, Penny, then moved slowly toward the courtroom door, stopping for hugs with the many supporters who crowded the courtroom.

Outside the courtroom after the hearing, a subdued Reyes chatted and exchanged more hugs with relatives and supporters, including former investment banker Frank Quattrone, who himself beat obstruction-of-justice charges in a different case.

Prosecutors had asked for 30 to 33 months prison time for Reyes, along with a hefty $41 million fine and nearly $90 million in restitution payments, mainly to Brocade, for its expenses and losses caused by the case. Brocade paid for Reyes' defense, which cost at least $46.7 million.

A jury of three men and nine women spent six days in August deliberating the case, before returning a guilty verdict on 10 criminal charges, including conspiracy and securities fraud. The shocking verdict sent a chill through Silicon Valley, where dozens of companies have had to restate earnings because they backdated stock options given to employees and failed to report it in filings with the Securities and Exchange Commission.

Wednesday's sentence is likely to do the same.

Brocade pioneered networked storage equipment, and the company grew rapidly during the late 1990s, with its stock soaring, reaching a split-adjusted high of $133 in October 2000. The stock nose-dived with the bursting dot-com bubble and was trading at $6.43 Wednesday.

Like many Silicon Valley companies, Brocade used grants of stock options to reward employees in a competitive job market. Options are a right to buy stock at a set price. When the stock rises in value, the shares can be sold at a profit.

Reyes was accused of fabricating grant dates at which Brocade's stock was lower than it was on the true date of the grant, increasing their potential value. That did not break the law, but failing to report it as an expense to investors did.

-----

To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to http://www.mercurynews.com.

Copyright (c) 2008, San Jose Mercury News, Calif.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NASDAQ-NMS:BRCD, Brocade Ex-CEO Reyes Sentenced to 21 Months in Prison: EX-BROCADE CEO's FRIENDS STRUCK BY PRISON SEN
Back to Current Headlines