Aug 11, 2006 5:19 pm US/Pacific
Former Brocade Executives Indicted
SAN FRANCISCO (AP) ―
Two former executives of San Jose-based Brocade Communications Systems Inc. were indicted by a federal grand jury in San Francisco today on a total of 12 counts of fraud and false statements related to the backdating of employee stock options.
The grand jury indictment replaces a July 20 criminal complaint that accused former Brocade Chief Executive Officer Gregory Reyes and former Vice President of Human Resources Stephanie Jensen of a single count of securities fraud.
Reyes, 43, of Saratoga, and Jensen, 48, of Los Altos, were the first two executives to be charged in a nationwide federal probe of possible backdating of stock options by 80 companies.
Reyes and Jensen are scheduled to be arraigned on the indictment before a federal magistrate in San Francisco on Aug. 30.
U.S. Attorney Kevin Ryan said, "Today's indictment brings additional charges, including conspiracy, falsifying Securities and Exchange Commission filings, and making false statements to auditors."
Backdating of stock options has been used as a recruiting and compensation tool and enables employees to buy stock at a lower price and thus higher profit.
The indictment alleges that Reyes and Jensen concealed millions of dollars in employee compensation expenses by backdating options between 2000 and 2004.
After an internal audit of compensation expenses related to the stock options, Brocade revised its financial statements in 2005 to show a decrease of $280 million in income for the period between 1999 and 2004, according to the indictment.
Ryan said, "It is integral to the public trust in our financial markets that books and records are maintained honestly, and that the true financial condition of public companies is disclosed accurately."
The counts in the indictment each carry sentences of up to five to 20 years in prison upon conviction, but if the two executives are convicted, a judge will determine their penalties after considering federal sentencing guidelines.
Reyes was CEO of Brocade, a computer networking company, from 1998 to January 2005 and Jensen held her job from 1999 to 2004.
Both Reyes and Jensen are accused of eight counts of conspiracy to commit securities fraud, securities fraud, mail fraud, making false statements in SEC filings, and falsifying books and records.
Reyes also faces four other counts of making false statements to Brocade's auditors.
(© 2006 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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