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Backdating Conviction Sets Unsettling Tone

Melissa Klein Aguilar | August 21, 2007

The first criminal conviction of a corporate executive over backdated stock options has Corporate America buzzing about what the government’s victory bodes for the many, many other companies embroiled in the backdating mess.

Earlier this month, a California jury convicted Gregory Reyes, former chief executive of Brocade Communications Systems, on 10 counts of conspiracy, securities fraud, lying to accountants, and falsifying books and records relating to a scheme to backdated option grants to Brocade employees. He now faces up to 20 years in prison and a $5 million dollar fine on each count and will be sentenced on Nov. 21.

The verdict is bound to unnerve numerous executives who have backdating controversies on their hands. Some observers expect the win to embolden prosecutors to move forward with other criminal cases. Others caution that the victory doesn’t necessarily mean the government will mount a full-court press on...

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