Brocade Communications Systems former Chief Executive Officer Gregory Reyes, 43, has been charged by U.S federal authorities with civil and criminal securities fraud along with two additional former company executives, marking the first time formal charges have been filed in the ever-widening government probe of stock-options backdating, The Wall Street Journal reports.
Reyes, who was San Jose, Calif.-based Brocade’s chief executive until January 2005, is accused of acting as a “committee of one” in passing down backdated options to hundreds of employees in an effort to increase the possible value of the stocks and hide compensation costs from shareholders, according to the Journal. Reyes is not accused of giving himself backdated grants or profiting from them, the Journal reports.
Charged along with Reyes were ex-Brocade Human Resources Director Stephanie Jensen, 48, and former company finance chief Antonio Canova, 44, though Canova faces only civil charges, the Journal reports. Jensen was with Brocade from October 1999 through 2004, and Canova was with the firm from May 2001 to last December, according to the Journal.
Christopher Cox, Securities and Exchange Commission (SEC) chairman, said upward of 80 companies are under investigation for possible stock-options backdating, and that additional related charges could be filed against more companies within the “coming weeks and months,” the Journal reports.
“The full weight of the federal government is being put behind this effort to stamp out fraudulent stock-options backdating,” Cox said at a press conference, according to the Journal.
Reyes was charged by the U.S. attorney for the Northern District of California with one criminal count of securities fraud, and Jensen, who is accused of helping Reyes keep the scheme under wraps, faces the same charge, the Journal reports. Both could be sentenced to as long as 20 years in prison if found guilty, according to the Journal. The pair also faces civil SEC charges of securities fraud and filing inaccurate documents, along with Canova, the Journal reports.
The charges are the first official filings against executives in the government stock-options probe, and the fact that the two other executives were charged suggests that federal authorities will not be lenient in sentencing involved parties who may not hold the top seat on the corporate ladder.
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