Former Brocade CEO faces civil and criminal charges for alleged stock misconduct

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Greg Reyes, former chief executive officer, president and chairman of Brocade is under the spotlight, accused of committing accounting fraud.

The United States Attorney's Office for the Northern District of California, the Securities and Exchange Commission (SEC) and the Federal Bureau of Investigation have filed civil and criminal securities fraud charges against Reyes and his former colleague, ex vice president of HR, Stephanie Jensen.

Following an 18-month investigation by the FBI and SEC, it is alleged that the two tried to give employees favorably-priced stock options without recording necessary compensation expenses, resulting in the restatement of hundreds of millions of dollars of Brocade's financial results.

US attorney Kevin V. Ryan stated: "The criminal complaint alleges that these defendants altered and backdated Board of Director meeting minutes and employment offer letters in a scheme to defraud in connection with the pricing and granting of stock options. It is integral to the public trust in our financial markets that books and records are maintained honestly, and that the true financial condition of public companies is disclosed accurately."

Reyes's legal team hit back at the allegations, denying any allegations of wrong-doing.

"Greg Reyes is innocent, and if necessary, we will prove his innocence in a court of law," said Richard Marmaro, Reyes's attorney and a partner in the LA office of Skadden, Arps, Slate Meagher & Flom, in a statement.

"...If there were companies or individuals that blatantly violated the Federal Securities Laws with an intent to misstate the company's financials, they should be called to account for it. This is absolutely not one of those cases. If Greg Reyes is charged, when the evidence comes out in court, he will unquestionably be found innocent, and everyone will wonder why the government indicted him in the first place."

The SEC is also taking civil action against former Brocade chief financial officer Antonio Canova.

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