June 24, 2010 / 10:25 PM / 7 years ago

Former Brocade CEO Reyes sentenced to 18 months in prison

* Ordered to pay $15 million fine

* Similar to sentence in earlier case that was overturned

By Alex Dobuzinskis

LOS ANGELES, June 24 (Reuters) - A U.S. judge sentenced the former chief executive of Brocade Communications Systems Inc BRCD.O to 18 months in prison on Thursday for securities fraud, and ordered him to pay a $15 million fine, said Jack Gillund, a spokesman for the U.S. Attorney’s Office.

Gregory Reyes was found guilty in March of securities fraud, after becoming one of the highest profile executives to be accused of illegal stock options backdating.

The sentence that U.S. District Judge Charles R. Breyer imposed on Reyes in San Francisco on Thursday was similar to one handed down in the former executive’s first trial in 2007.

That conviction was overturned by the U.S. Court of Appeals for the Ninth Circuit, over prosecutorial misconduct. The appeals court ruled that prosecutors made a false assertion of material fact to the jury during closing arguments.

But U.S. prosecutors re-tried Reyes, resulting in a conviction and a win for the government, which has struggled to secure convictions in backdating cases.

Backdating is the practice of retroactively pricing option grants on days a company’s stock price was low, to lock in financial gains. The practice in effect increases the value of the options, but is not illegal if properly accounted for.

Prosecutors said that Reyes engaged in illegal backdating to reward insiders and mislead investors, and to pad his own pocket from the scheme.

Reyes had originally been given a 21-month prison term and a fine of $15 million.

The backdating of stock option grants became a major issue in 2007, with more than 170 companies either investigated by U.S. authorities or conducting internal inquiries into possible manipulation of stock-option grant dates. (Reporting by Alex Dobuzinskis; editing by Carol Bishopric)

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