Options Tamperer Gets Harshest Sentence Yet

The former CEO of networking manufacturer Brocade, Inc. was hit with the strongest sentence handed down to date in the ongoing trials of Silicon Valley executives caught falsifying company records to boost stock option payoffs.

Gregory Reyes, who served as Brocade's CEO from 1998 through 2005, was convicted in August 2007 on charges of fraud, falsifying documents, and conspiracy. At sentencing today, Judge Charles Breyer ordered him to prison for twenty-one months in addition to a $15 million fine. Reyes was caught in an investigation by the Justice Department and Securities and Exchange Commission which also implicated executives from Broadcom, McAfee, and almost two hundred other companies. The executives are charged with backdating stock options to increase their valuation — a practice that is not illegal in itself, provided it is properly reported — and then falsifying company records to cover the activity. The falsified records are then relied upon by investors, as well as being utilized in filings with the IRS and SEC.

Reyes' sentence is, to date, the most prison time handed down, but could easliy be surpassed by later trials. Many of the accused have plead guilty and avoided trial, but several others — including former McAfee attorney Kent Roberts — are still awaiting trial.

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