Storage Soup

Aug 8 2007   12:53PM GMT

Reyes verdict offers peace of mind

JoMaitland Jo Maitland Profile: JoMaitland

Greg Reyes, the former CEO of Brocade, was found guilty of securities fraud yesterday in the first criminal case involving the backdating of stock options.

For IT users, the result should offer some peace of mind that when you spend millions of dollars with a company, it is not going to get away with being so dysfunctional as to end up like Enron, leaving its customers and employees out on the street.

The conviction is also a signal to the rest of the industry that the buck stops with the CEO, no matter how busy you are. Reyes’ defense (if you believe it) was that he was too busy to know everything going on at the company and that others were responsible. Clearly the Judge didn’t buy it.

Reyes’ lawyer also argued that Reyes did not benefit personally from backdating options, which is absurd. A CEO’s compensation is inextricably linked to the financial success of the company on Wall Street. Hence the SEC’s unanimous vote last year in favor of tighter regulations around executive compensation.

Reyes is, of course, appealing the verdict, but it seems unlikely that the courts will take much notice. His sentencing is scheduled for Nov. 21 and he could get as much as 20 years in jail. It’s more likely he’ll serve a fraction of this time, but will face hefty fines.

If it was up to me, CEOs convicted of this type of offence would be restricted from ever running a public company again. I personally had several meeting with Reyes in the course of covering the storage industry, and he commonly gave the impression of being beyond reproach. He once abruptly ended a meeting as he was “too busy” and didn’t like my questions. I don’t get the impression from news of his trial that any of that has changed.

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  • Tom
    I agree. In most all of the things that I have read about this case, almost nobody (but a few like yourself) has acknowledged that people like Reyes can and do in many cases of course benefit from how well the company is doing - which is of course directly related to the tactics used (in this case backdating stock options to hire and retain valuable employees) to ensure that they company is viewed as being as successful as possible.
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