The Securities and Exchange Commission has filed the first charges in its stock options practices investigations, charging the former chief executive of Brocade Communications Systems Inc. Gregory Reyes with misconduct linked to option grant practices.
In the complaint, filed in U.S. District Court for the Northern District of California in San Jose, the SEC alleged that between 2000 and 2004, the company concealed millions of dollars in expenses from investors and overstated its income by falsifying records relating to employee stock option grants. In January 2005, Brocade announced a series of restatements, dating back to 1999.
"The fraudulent scheme was orchestrated by former chief executive officer Gregory L. Reyes, who routinely backdated documents and evaded rules requiring Brocade to publicly report these compensation expenses," the SEC said in a statement.
The SEC also names two other Brocade employees, who allegedly assisted Reyes, 43, -- former vice president of human resources Stephanie Jensen and former chief financial officer Antonio Canova.
The SEC, Federal Bureau of Investigation and federal prosecutors are continuing to investigate about 60 companies to determine if they have manipulated the grant dates and exercise prices of options to boost the value to the corporate executives recipients. The Internal Revenue Service is also looking into possible tax law abuses. SEC Chairman Christopher Cox had hinted earlier in the week that charges would be coming soon in the investigation.
Last month, Brocade said that it began settlement discussions with the SEC earlier this year, and had already recorded a $7 million provision for an estimated settlement.
