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Delay, Dropped Charges in Ex-Brocade HR Chief's Backdating Trial Could Mean Light Sentence for Former CEO

November 15, 2007
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For the first time since Gregory L. Reyes was convicted on August 7 of 10 felonies for his role in a stock options backdating scheme, including conspiracy and securities fraud, the fate of the ex-Brocade Communications Systems CEO isn’t looking so bleak.

Last week the federal judge in the case, Judge Charles R. Breyer, decided to delay the November 21 sentencing hearing for Reyes until the criminal trial of Reyes’ alleged co-conspirator, Brocade’s former head of human resources, Stephanie Jensen, is concluded. That trial is scheduled to begin November 26.

Breyer’s decision is being viewed—perhaps hopefully—as an indication that the prison term Reyes might serve won’t be as severe as originally feared. Because on October 31, the U.S. Attorney’s Office elected to drop four of the remaining six charges it had filed against Jensen—limiting the case against her to one count of conspiracy and one count of falsifying Brocade’s books and records.

Only a few weeks ago, Reyes’ supporters feared he might serve a term of no less than 10 years, because all but one of his 10 convictions carry a potential 10-year sentence. And in filings with the court in advance of the original November 21 hearing, the prosecutors in the case, Assistant U.S. Attorneys Timothy P. Crudo and Adam A. Reeves, emphasized numerous issues relevant to federal sentencing guidelines, such as the calculable financial loss to investors that resulted from Reyes’ actions, indicating they plan to ask the court to impose a multimillion-dollar fine and a multiyear prison term.

The prosecutors refrained from recommending a specific sentence to the court. Nevertheless, people close to Reyes’ defense team say they believe prosecutors have suggested to Judge Breyer that Reyes serve a sentence of at least 10 years—equivalent to the term initially imposed on Michael Milken (Milken served only four years).

Additionally, others close to Reyes claim that prosecutors plan to ask the court to remand Reyes in custody immediately on the day he is sentenced, as opposed to allowing him to remain free on bail until his legal appeals are exhausted.

Reyes’ supporters find meaning in the developments in Jensen’s case mainly because Crudo and Reeves will also try Jensen, presumably with much of the same evidence and testimony used to convict Reyes.

“We think this is important because it might indicate that the government has finally realized they probably can’t catch lightning in a bottle twice,” quipped Silicon Valley venture capitalist Kevin Compton, formerly of Kleiner Perkins Caufield & Byers, now of Radar Partners.

Compton and Reyes are both partners in the San Jose Sharks professional hockey team. National Hockey League bylaws do not allow convicted felons to retain ownership stakes in its teams, so Reyes will have to relinquish his share in the Sharks, one of many assets that he is being forced to sell as a consequence of his convictions and mounting legal bills.

In its curtailed form, Jensen’s trial is expected to last only a few weeks. Nevertheless, this likely pushes Reyes’ sentencing out until January.

This story was filed by Carleen Hawn of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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