Brocade Ex-CEO Convicted of Fraud

A jury in San Francisco has convicted Gregory Reyes, the former chief executive of Brocade Communications Systems, of conspiracy to defraud shareholders. The executive of the San Jose-based high-tech firm could face years in prison and millions of dollars in fines.

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RENEE MONTAGNE, host:

Federal prosecutors yesterday won an important test case.

A jury convicted a former executive in the first criminal trial over the backdating of stock options.

NPR's Scott Horsley reports.

SCOTT HORSLEY: Gregory Reyes, the former chief executive of Brocade Communication Systems, was found guilty on all 10 criminal counts, including conspiracy to defraud shareholders of the San Jose-based firm. He could face years in prison and millions of dollars in fines. Reyes was the first executive to stand trial in an options backdating case. Former federal prosecutor Chris Battle(ph) says he probably won't be the last.

Mr. CHRIS BATTLE (Former Federal Prosecutor): There are investigations involving roughly 140 publicly held companies. This is the start of a trend, not the conclusion of a process.

HORSLEY: Some have likened options backdating to betting on a horserace after it's been run. It involves selecting dates in the past when a company's stock price was low, to grant options boosting the recipient's profit potential. It's illegal if not probably disclosed. Reyes is in some ways an unlikely poster boy since there's no evidence he personally profited from backdated options. Battle says back daters are often tripped up legally by efforts to cover their tracks.

Mr. BATTLE: When executives try and cover up by manufacturing bogus, fictitious documents, prosecutors will use that to gain a conviction.

HORSLEY: Reyes's conviction include increased pressure on other backdating executives to cut a deal with prosecutors. Reyes himself is promising an appeal.

Scott Horsley, NPR News.

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