Prosecutors were able to win their convictions based on testimony and evidence that showed Jensen knowingly committed wrongful acts, even though she might not have known what specific laws she was breaking.
By this standard, officers of publicly traded companies don’t need to know or understand securities law to break it—they just have to know, or expect that reasonable people would believe, their behavior to be wrong.
“It wasn’t easy—you’re talking about someone’s life,” said juror Iris Hoffman, 61, after the convictions were declared. “All I can say is that we discussed each issue thoroughly; we really looked at both sides. I would have been happy to have found a way, legally, not to have had to come to [this] particular decision, but we had to follow the law.”
“It’s very scary,” said one observer in the courtroom last week. He asked not be identified because of his relationship to some defendants in other, pending backdating cases. “It opens the door to criminalizing a lot of behavior that might only be human error: ‘Oh, I didn’t know that was against the law. Now I won’t do it,’ ” he added.
In cases where a company remains intact, the observer added, “shouldn’t these cases be handled [as] civil matters? This isn’t Enron.”
The government views such comments as armchair pundits splitting hairs. In a contradiction of the public debate over backdating, this case always was “a simple fraud,” said Assistant U.S. Attorney Adam A. Reeves, who, along with Assistant U.S. Attorney Timothy P. Crudo, successfully prosecuted both Jensen and former Brocade CEO (and Jensen’s former boss) Gregory L. Reyes. “Falsifying records is always wrong, and in this case [the dates] came from the bottom up.”
Originally charged with eight felonies, Jensen was ultimately tried and convicted on two counts—criminal conspiracy to commit securities fraud and the act of falsifying Brocade’s books and records—for her role in an illegal employee compensation scheme that took place at the company between 2000 and 2004. In August, Reyes, the first executive ever to be criminally tried for these offenses, was convicted of 10 felonies for his role in the same matter.
Until now, stock option grants, and the complexities of recording and accounting for them appropriately to regulators, have been assumed to be the domain of a company’s finance, accounting or legal departments. (Reyes’ own defense team made this argument in its effort to absolve the CEO of responsibility for what his lawyers dubbed stock option “administrivia.”) Certainly few people ever thought that an HR officer could be deemed responsible for it.
But compensation paperwork, including employee offer letters and stock option grant forms, were originated and administered by Brocade’s human resources department—as they are at most public companies.
In a streamlined case that began November 26 and lasted only six days, the government successfully convinced the jury that it was Jensen, as the head of HR, who directed and supervised her staff as they doctored stock option grant forms and meeting minutes of a special compensation committee of the board of directors (made up only of Reyes), thus creating records of events that, in fact, never took place.
Here especially, Crudo argued in his closing, blaming the scheme on Reyes, or anyone else higher on the organizational chart, didn’t hold water because it was Jensen who actually determined the dates on which Brocade’s shares were trading at periodic lows—and it was Jensen who recommended to Reyes which of the dates ought to be falsely applied to Brocade’s stock option grant minutes.
Perhaps in deference to the novelty of these trials, the judge in the case delayed Reyes’ sentencing until the conclusion of Jensen’s trial. Last week, Judge Stephen R. Breyer set Reyes’ sentencing hearing for December 19. He faces up to 20 years each for nine of his convictions and five years for his own conspiracy charge. The judge is widely expected to order a much shorter sentence.
Jensen faces five years for conspiracy, but she may be able to avoid any incarceration for the books and records violation. In a quirk of the law, while she can be convicted merely for wrongful acts, a person may not be incarcerated under Title 15 of the U.S. Code, Section 78, unless they have knowledge of the law they are actually violating. Her lawyers were not available for comment after the trial.
A sentencing hearing for Jensen has not been set.