Accounting Expert Witness Testifies for Brocade Communications Exec

U.S. District Judge Charles Breyer in San Francisco chose not to rule Thursday on whether to dismiss criminal charges against the former chief executive of Brocade Communications Systems Inc. Gregory Reyes is on trial for allegedly tampering with stock options and faces 10 felony security charges. Reyes’ defense relied upon the testimony of an accounting expert witness. The expert witness described the applicable accounting rules and testified regarding the confusion about their interpretation. Reyes is charged with lying to investors and auditors about Brocade’s stock options practices and falsifying records. further reports:

Reyes is accused of backdating stock options-picking favorable grant dates in the past when the company’s stock price was low to boost the potential windfall for the recipient. The practice is not illegal if accounted for properly. Prosecutors allege that Reyes intentionally concealed the expenses to mislead investors about the true profitability of San Jose-based Brocade, which makes switches and software used to connect corporate servers and data storage systems. Reyes’ defense lawyer, Richard Marmaro, said prosecutors have not proven that Reyes had criminal intent when he approved backdated stock option awards and signed off on faulty financial statements. But Assistant U.S. Attorney Timothy Crudo, the lead prosecutor, says “This crime was not an accident. This was an intentional and routine effort to game the system to keep the company growing while avoiding compensation expenses that would hurt the bottom line.”