Retrial of Backdating Case Goes to Jury

Tuesday, Mar 23, 2010  |  Updated 5:58 PM PDT
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Retrial of Backdating Case Goes to Jury

ASSOCIATED PRESS

Former Brocade Communications Systems Inc. Chief Executive Gregory Reyes had his criminal conviction tossed.

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A federal jury began deliberating in San Francisco today in the  retrial of a former Silicon Valley chief executive accused of stock options backdating.
     
Gregory Reyes, 47, of Saratoga, was chief executive officer of  Brocade Communications Inc. of San Jose, a date storage networking company,  from 1998 to 2005. Reyes was also an early investor in the San Jose Sharks  ice hockey team.

      He is accused of 10 counts of conspiracy, fraud and false  statements in connection with alleged backdating of employee stock options.
   
Reyes was convicted of all 10 counts in an earlier trial in 2007, but the conviction was overturned by a federal appeals court on the ground  that a prosecutor misled jurors during closing arguments.
     
The earlier proceeding was the first backdating case to go to  trial in a nationwide probe of stock options backdating by the U.S. Justice Department and Securities and Exchange Commission.
     
Backdating is the practice of allowing employees to buy stock  retroactively at a lower price that was in effect at an earlier date and thus to make a greater profit if they sell the shares.
     
Backdating in itself is not illegal, but it is a crime to fail to  disclose it as an expense in company records and SEC filings.
     
Defense attorneys have argued that Reyes didn't intentionally  engage in illegal practices.
     
Defense attorney Stephen Neal told the jury during his closing  argument Monday that an accounting rule governing backdating "was confusing and unclear." He said prosecutors failed to link Reyes to alleged false  statements in company records.
     
Neal asserted, "In the end, the prosecution has suffered critical failures of proof in this case."
     
Both prosecution and defense agree that Reyes personally gained  $1.9 million from exercising stock options granted to himself.
     
The trial in the court of U.S. District Judge Charles Breyer began on Feb. 22. The prosecution rested its case last week, and after the defense  chose not to present evidence, closing arguments were held Monday. 
     
The jury began deliberating after receiving instructions from  Breyer this morning.
    

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