Lying Government Humiliated In The Very First Backdating Conviction
Another case of prosecutorial misconduct has made its way into the court room: Brocade’s former CEO Greg Reyes was ordered a new trial when the prosecutor’s knowingly provided false material to the jury. The prosecution had to show that Reyes had criminal intent when failing to report expenses related to backdated stock options, which made the case a more technical and complicated one.
The complication stems from companies only being required to expense certain type of options: “in the money options”. For example, if a company grants an option (stock) to an employee on Sept 1st with a strike price at $40 per share, the company would ONLY need to record or expense it if on that day the stock price if higher that the strike price ($41). However if the stock price on that day is below the strike price ($39) then it would not need to be expensed.
As one can see, this seems more like a technical accounting issue than an intentional criminal conduct. Prosecutors found that Brocade did not expense the “in the money” options and in not doing so Brocade was misstating its financial condition in its SECs filings. The amount of the misstating of expenses was rather minor compared to its balance sheet. And the expense were only accounting expenses, rather than money out the door, so it is not likely that shareholders would have even cared. The Court of Appeals did not even get to discuss this due to the prosecution’s misconduct.
Reyes defense was that he relied on the finance department to okay the options and he assumed their work was within the rules. In the government’s closing argument he stated that the finance department was not aware of the backdating and that it could call all the members of the department and they would testify to not knowing. This was not true, and the prosecutor knew that. The Judge did not tolerate such misconduct, especially when prosecutors are privileged to represent the United States, and represent the legal system.
With the combination of the misconduct and ambiguity concerning the case, it would be in the best interest to dismiss Reyes. How much humiliation should a person have to go through anyway? Stated best by John Carney, “He shouldn’t be made a martyr to test legal theories.”
From the Business Insider:
A federal appeals court yesterday tossed out the very first backdating conviction ever. Greg Reyes, the former CEO of Brocade, had been convicted during the height of backdating hysteria in 2007. The Ninth Circuit cited prosecutorial misconduct and ordered a new trial. Basically, the court said the prosecutors lied about the state of the evidence in their closing arguments.
Can someone please explain to me why there is even a second trial? Reyes needs to be left alone. Clearly if the prosecutors had to lie and mislead the jury about him and the backdating issues in the first trial what will change in the second trial? Do they think they will find more evidence on the topic? I doubt it.