December 19, 2007 / 8:18 PM / 10 years ago

Brocade ex-exec didn't conspire on options - Reyes

SAN FRANCISCO, Dec 19 (Reuters) - Brocade Communications Systems Inc’s (BRCD.O) former personnel director did not conspire to backdate employee stock-option awards, the company’s former CEO said in a court document unsealed on Wednesday that goes against a jury’s findings in the case.

Stephanie Jensen, Brocade’s former vice president of human resources, “never participated in a scheme to defraud Brocade, its board, its shareholders, its auditors, the public” or the U.S. Securities and Exchange Commission, former Brocade Chief Executive Gregory Reyes said in a sworn statement in March.

The statement and other materials unsealed by a U.S. federal judge are the first time the public has heard directly from Reyes about the backdating allegations, albeit in court records dating back nine months.

At trial, Reyes’ lawyer argued that while Reyes backdated options awards, he did not know the practice was illegal and was unaware of the accounting and legal consequences of doing so. While not illegal, backdating of options awards must be disclosed and accounted for under U.S. accounting rules.

A jury convicted Reyes in August of 10 criminal counts, making him the first executive to be found guilty at trial of charges stemming from a scandal in which more than 200 U.S. companies allegedly used hindsight to date options grants on days when underlying stock prices were low, thereby locking in potential gains.

Reyes, who was CEO of the San Jose, California-based data-storage network switch maker from 1998 to 2005, did not testify at his own criminal trial or at Jensen’s trial, which ended with a jury finding her guilty on Dec. 5 of conspiracy and falsifying records.

Judge Charles Breyer of U.S. District Court in San Francisco unsealed Reyes’ pretrial statements after prosecutors said they needed them to prepare for Reyes’ sentencing, which was postponed from Wednesday to an undetermined date. Reyes made the statements in support of Jensen’s request to be tried separately from him.

”Ms. Jensen did not have the authority to choose the date or stock price of options,“ Reyes said in the March statement. ”Only I had that authority, and only I knew when I made my decisions.

“I told Ms. Jensen that the option grant dates were the dates that I made the granting decisions. Options were priced at the fair market value on the grant dates,” he said.

Jensen’s lawyers said in another document unsealed on Wednesday that Reyes’ statements that only he knew when he made the option granting decisions “are critical to Ms. Jensen’s defense. They are specific, clear, unequivocal, uniquely known by Mr. Reyes, and highly exculpatory to Ms. Jensen.”

Jensen’s attorney Jan Nielsen Little told jurors at trial that Jensen was unaware of the accounting and legal consequences of backdating and had inherited a compensation system devised by the company’s former chief financial officer.

Jensen faces up to 20 years in prison at her sentencing, scheduled for March 12. (Reporting by Philipp Gollner, editing by Gerald E. McCormick)

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