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Ex-CEO of Brocade gets prison, $15-million fine

January 17, 2008|From Bloomberg News

Former Brocade Communications Systems Inc. Chief Executive Gregory Reyes, the first CEO convicted by a jury for manipulating stock options, was sentenced Wednesday to 21 months in prison and ordered to pay a $15-million fine.

Prosecutors had sought a 33-month sentence. In giving the lesser term, U.S. District Judge Charles Breyer in San Francisco said he took into account Reyes' contributions to charity.

The case was about "the failure of a CEO of a publicly traded company to honestly disclose financial information," Breyer said. "It is about lying to his company."

Reyes, 45, was convicted last year of conspiracy and fraud for backdating hundreds of employee option grants in 2001 and 2002. He hid the practice from Brocade's auditors and investors and inflated reported revenue, prosecutors said.

Reyes may remain free while he appeals his conviction to the U.S. Court of Appeals in San Francisco, Breyer said. Prosecutors had sought a $41.2-million fine and $90 million in restitution to repay Brocade for Reyes' legal bills and company investigations. Brocade paid $7 million last year to settle a lawsuit by the Securities and Exchange Commission.

Brocade, the largest maker of switches for data-storage networks, restated results in January 2005, widening its 2004 loss to $32 million from $2 million because of misreported stock-based compensation. The San Jose company restated results again in November 2005, adding about $71 million in expenses for options to executives that it hadn't properly recorded.

Reyes cried as he read a statement to Breyer.

"I'm sorry," he said. "There is much that I regret. If I could turn back the clock, I would. There are many things I would do differently."

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