On the Day Frank Quattrone Re-Hangs His Shingle, Stephanie Jensen is Sentenced to Prison

Posted by: Peter Burrows on March 20, 2008

“The porpoise caught in the tuna net.” That’s how one shocked insider at Brocade Communications described former human resources vice president Stephanie Jensen, when news broke in mid-2006 that she’d been charged with colluding to routinely back-date options at the storage gear maker. Other sources reiterated the view that she was the most unlikely of conspirators—a mild-mannered, kind, not especially ambitious sort. If she didn’t stand out in Brocade’s sharp-elbowed culture, she certainly wasn’t one of the tone-setters. “She’s like a den mother,” said another source.

Now, Jensen is sentenced to go to jail for four months. That, and a $1.25 million fine, was the judgement handed down in a San Francisco court yesterday.

I can only see this outcome as somewhat tragic—and ironic. Tragic because even if the allegations are true that she colluded with former CEO Greg Reyes over a number of years, the truth is that Brocade was far from the only company doing it. So were 200 other companies, including a high percentage of tech companies. That doesn’t make it right, but it also doesn’t make them all hardened criminals. I’d bet in more cases than not, it makes them people who unwisely cut a few corners that nobody (eg. lawyers, auditors) was warning them not to cut, at a time when they had every reason to believe their competitors were doing the same thing (Think baseball players taking steroids).

Also, let’s not forget that Brocade just happened to be the first company to come under the government’s scrutiny—though it was far from the most egregious backdater. Yet she is the guinea pig, and a few hunder other HR chiefs are not. Sobbing, she accepted responsibility for her actions in court yesterday. Reports suggest even Judge Charles Breyer felt somber about the ruling—but that despite her “good values” he felt compelled to issue a harsh verdict as a warning to other would-be backdaters.

The sentence happened to come on the same day that news was breaking that once-indicted investment banker Frank Quattrone was back in business. Once upon a time, he was widely described as the personification of Silicon Valley-style greed and evil, the result of an aggressive prosecution by none other than Eliot Spitzer. Yet while there are many who found some of Quattrone’s tactics to be sleazy, in the end the government only came up with one obstruction of justice charge, tied to a lone e-mail his staffers to “clean up those (computer) files.” After a long fight, the government dropped the charges.

That’s the irony. After all of the high and mighty that have come under federal scrutiny in recent years, this little-known HR lady is the first sentenced to hard time.

So the question becomes, does the time fit the crime. Same for Reyes, who is appealing a 21-month sentence. What do you think?

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Reader Comments

Annoying1

March 21, 2008 02:42 PM

This is a crock. Most of the people ranting and raving over backdating don't know anything about it, or aren't following it closely. You, Peter Burrows have done an excellent job covering the true issues here. There might have been some self dealing in executive compensation plans, but that is not what the government is prosecuting. They are prosecuting employee plans where accounting firms openly told compensation committees to pick a low price in the quarter to give employees. Compensation committees were set up by (ahem) LAWYERS - as committees of one- specifically for this purpose. Now you can say this violated the spirit of the law, but CEOs are too busy to question the interpretation of their accounting firms or legal counsel for something so insignificant (to them). Thats what this entire "crime" is about, and to add insult to injury - this process for managing employee stock options was implemented in 1980 or maybe even before.

On another note, in typical Spitzer-esque fashion, the government is lying to the court in all of these cases, claiming CFOs were in the dark or other such nonsense- when really the CFOs thought all was well, but the judges are so predisposed to thinking every CEO is a crook, they fall in line with the government's scam, using words like "scheme" to describe a simple, costless, widespread, misinterpretation of an accounting rule.

Bottom line- if the government starts prosecuting some executive for fraud- but there is no apparent benefit in said fraud for the accused- it smells like presecutorial overreaching to me.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, 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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