Awaiting a Verdict in the First Options Backdating Criminal Trial

Posted by: Peter Burrows on July 30, 2007

Earlier this morning, the jury in the Greg Reyes case filed out of the courtroom to begin their deliberations on the 10-count indictment of the former CEO of Brocade Communication. And they left with the prosecution’s case on a decided upswing—thanks to a powerful final argument from assistant D.A. Tim Crudo last Friday, and a failed motion by the defense to have all charges dismissed based on alleged prosecutorial misconduct based on what Crudo said.

The fireworks started moments after Crudo completed his remarks last Friday. Within moments, Reyes' lawyer Rich Marmaro notified Judge Charles Breyer of his intentions to file the motion for dismissal, based on a what he said was repeated lies told by Crudo in his rebuttal to Marmaro's closing argument (which is the final at-bat either side gets to make its case to the jury). "There are a number of things the government flat out mis-represented," roared Marmaro. "I'd like to list them."

Marmaro's main complaint was that Crudo lied about a key plank of the government's argument: that Brocade's finance department was kept in the dark about a scheme by Reyes and former Brocade HR chief Stephanie Jensen to avoid incurring expenses on backdated options grants.

Specifically, Crudo argued that former Brocade controller Bob Bossi did not know such backdating was occurring. But Marmaro insisted that Crudo knew that this was untrue, because Bossi had admitted knowledge of the practice in so-called Form 302 filings that Crudo had read (Form 302s are notes of interviews done by government agents in the course of investigating a case.) In his four interviews, Marmaro argued, Bossi not only admitted he knew the practice was occurring but that he had a role in processing one such grant, to former executive Richard Geruson.

The 302s are not public documents, so I can't know for sure what they say. But the Judge took a read over the weekend, and summarily shot down the reasoning behind Marmaro's dismissal motion this morning. Breyer's comments suggest that he was compelled by the government's argument in a motion opposing the dismissal. The government's take: that Bossi and others figured out on their own that Reyes was backdating--despite by efforts by Reyes and Jensen to keep it a secret. The sense is that Bossi and others had suspicions, but lacked sufficient detail to know if Reyes was doing anything illegal--not to mention the nerve to confront him to find out. While Breyer didn't reject the dismissal motion, he is letting the jury proceed with its deliberations.

Breyer's interpretation takes some of the steam out of the argument by Reyes' supporters that he's the victim of an overzealous prosecution by a Justice Department willing to do whatever it takes to get a conviction in this landmark options backdating case (One source compared Crudo to Mike Nifong, the discredited--and disbarred--former DA who brought the charges against the Duke lacross players).

But questions do remain. Why, according to Marmaro, has former Brocade CFO Mike Byrd reportedly agreed to pay a $1.9 million fine to the SEC (The SEC says no such deal has yet been inked, but sources say the paperwork is done and awaits signature)? Would Byrd have agreed to part with $1.9 million to avoid SEC charges, if he'd been innocent of any part in Reyes' alleged scheme? And if he had been involved, that would obliterate Crudo's argument that Reyes and Jensen pulled the wool over the finance department's eyes. As a result, people in the Reyes camp fume that news of this settlment is being delayed until after the jury comes back with a verdict.

That's all water under the bridge--for now, anyway. Sources say that Marmaro made his motion to dismiss only partially because he thought it had a prayer of being accepted by Breyer. Rather, if he hadn't, he would not have been allowed to bring up his complaints about Crudo's tactics when it comes time for the inevitable appeal, should the jury find Reyes guilty.

Reader Comments

Jim Ledbetter

July 31, 2007 8:52 AM

Interesting post. One small point: you refer to Crudo as an "assistant D.A."; he's not. He is an assistant U.S. attorney. It is an important distinction, in that readers will assume that this is a local case rather than a federal one.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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