Former Brocade Execs Indicted In Options Scandal - InformationWeek

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7/31/2006
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Former Brocade Execs Indicted In Options Scandal

Back-dated options were used to recruit new employees and retain existing ones, the government charges.

The federal government is turning the heat way up on the growing stock options scandal. Gregory Reyes, former CEO of storage networking company Brocade Communications Systems, and Stephanie Jensen, former VP of HR, were charged last week with securities fraud, the first criminal charges from the feds. They face up to 20 years in prison and millions in fines and restitution. A former Brocade CFO faces civil charges.

The government accuses the two of repeatedly falsifying the dates of stock options granted to employees and not properly expensing the grants, resulting in greater returns for recipients. Reyes' attorney says he's innocent, and that Reyes himself got no financial gain.

Brocade is one of about 60 companies caught up in the backdating brouhaha, most of which are IT companies that used options to entice talent in the dot-com era. Look for the government to keep up the heat; SEC commissioners have issued vague warnings of additional charges against companies. Meanwhile, it might be a good idea for tech firms to find new incentives for recruiting talent.

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