Brocade backdating scandal

A San Francisco jury found Reyes guilty on all 10 felony counts brought against him, including securities fraud, conspiracy and filing false financial statements. Backdating refers to the practice of selecting favorable dates in the past when a company's stock price was low and awarding option grants for those dates, increasing the potential value of the options when the company's stock appreciates.Backdating isn't illegal, but failing to disclose or properly account for the practice in financial statements constitutes felony securities fraud.Reyes' conviction will surely capture the attention of current and former technology executives who managed their companies throughout the dotcom heyday and long before Sarbanes-Oxley compliance rules were mandated.Reyes' conviction could also give federal prosecutors additional confidence to prosecute high-profile executives at other companies that have admitted to improperly disclosing or accounting for option grants.The .5 million settlement with prison-bound Brocade CEO Greg Reyes hasn’t been made public in court filings yet.) were reached less than a year after Brocade launched a massive suit against 10 former execs with the help of noted Washington, D.Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.

"While robust corporate compliance and internal auditing programs seem like a chore to some CEOs, they would have made it hard, if not impossible, for [Reyes] to get away with the practice…deterring him and ultimately saving his skin." Brocade is just one of more than 200 companies that have publicly disclosed either internal or federal probes into their option-dating practices.Dempsey is paying 0,000 and Neiman is paying 0,000 — but the money’s not actually going to Brocade.It’s just going to offset their own legal costs, which Brocade would otherwise have to pay.The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options vs.the much different – and more financially beneficial – tax rules that apply when issuing “at the money” or "out of the money" stock options.Additionally, companies can use backdating to produce greater executive incomes without having to report higher expenses to their shareholders, which can lower company earnings and/or cause the company to fall short of earnings predictions and public expectations.


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