By Karen Gullo March 19 (Bloomberg) — Ex- Brocade Communications Systems Inc. Chief Executive Officer Greg Reyes ’s request for a mistrial on stock options backdating charges was rejected by a judge who found no prosecutorial misconduct or false testimony. U.S. District Judge Charles Breyer in San Francisco said today there was no evidence that a government witness gave false testimony. A former member of Brocade ’s human resources department testified March 1 at Reyes’s trial that the stock options granting process at his former employer, KLA-Tencor Corp. , didn’t involve “look-back pricing” that was used at Brocade, Reyes’s lawyers said. The testimony suggested that there was no stock options backdating at KLA-Tencor and the government knew that grants at the company had been backdated, the lawyers said. They asked for Breyer to declare a mistrial or order that the jury be told of the error. Breyer said today he might follow prosecutors’ suggestion to instruct the jury that KLA-Tencor has disclosed that it backdated options. Reyes’s conviction on backdating charges in his first trial in 2007 was thrown out by a federal appeals court that ordered a new trial, citing misconduct by prosecutors for telling jurors that executives in Brocade’s finance department were unaware of the backdating when, in fact, they knew about it. Built-in Profits Stock options allow holders to buy shares at a later date, usually at the trading price on the day they are granted. Through backdating, companies change the grant date to one with a lower stock price, giving recipients built-in profits. Unless disclosed and recorded as an expense, the practice is illegal because it hides costs from shareholders and regulators. Reyes’s trial began Feb. 22. Closing arguments in the trial are scheduled for March 22. Brocade, based in San Jose, California, is the biggest maker of switches for data-storage networks. The case is U.S. v. Reyes, 06-00556, U.S. District Court, Northern District of California (San Francisco). To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net .
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Ex-Brocade Chief Reyes Loses Bid for Mistrial in Options-Backdating Case
