Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

From Law.com, the former Chief Executive Officer of Brocade Communications Systems, Inc., Gregory Reyes was sentenced to 18 months in prison yesterday in U.S. District Court for the Northern District of California for securities fraud and backdating stock options. The government had sought a 37 month sentence and a loss amount of $137 million.

Reyes' counsel attempted to argue that his lawyers should have done a better job in advising Reyes. U.S. District Judge Charles Breyer apparently found the argument an interesting one, stating "Yes, it's not a bad question to ask, 'Where were the lawyers?'" However, the Court rejected the argument, finding that Reyes was a sophisticated executive who understood what he was doing.

Reyes was first tried and convicted on the charges in 2006 and was sentenced to 21 months' imprisonment. However, the Ninth Circuit Court of Appeals reversed his conviction last year based on prosecutorial misconduct in interfering with witness testimony. Reyes was tried a second time in February and March of this year, and was convicted on nine counts. During the trial, Reyes' counsel blamed Brocade's outside counsel, attorneys with the law firm of Wilson Sonsini Goodrich Rosati, for failing to catch stock option backdating. However, Reyes' trial counsel never called anyone from the firm to testify. One of the documents at issue in the case was drafted by two experienced attorneys.

The Court received over 400 letters on Reyes' behalf.
 

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After the failure of its backdating case against Gregory Reyes, former Chief Executive Officer of Brocade Communications Systems, prosecutors with the U.S. Attorney's Office for the Central District of California are taking a new tack in its backdating case against former KB Home CEO Bruce Karatz, according to the National Law Journal. Karatz is alleged to have received millions in undisclosed income as a result of backdating stock options, and made $232 million in his last three years as CEO alone. The prosecution has decided to focus on Karatz's personal gain from the alleged scheme, and circumvent the defense--effective in the Brocade Communications Systems case--that backdating is not criminal where the corporation is aware of it, or where a defendant relies on the advice of attorneys or accountants. Defendants have also successfully argued that backdating is a legal and legitimate practice, and that many companies restate their income as a result of such conduct.

The U.S. Court of Appeals for the Ninth Circuit reversed Reyes' conviction in August based on the government's alleged prosecutorial misconduct in intimidating and influencing witnesses. The government's failure in the Reyes case came along with its defeat in 2008 in a backdating case against Kent Roberts, the former General Counsel of McAfee, Inc., a security software firm, and the dismissal of its case against two former executives of Broadcom Corp.

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