Friday, June 22, 2007

Testimony in the Brocade options scandal brings to light a rather interesting perspective by Silicon Valley Corporate management.

On the third day of the trial that began this week, a witness told the jury that Reyes told her during a private conversation that the back-dating of stock options in order to increase their value was "not illegal if you don't get caught," according to reports.

That statement entirely contradicted Reyes' defense lawyers' opening argument that neither the ex-chief nor anybody else at the company knowingly committed securities fraud.

The witness who claimed that Reyes had told her that only those that get caught are guilty was June Weaver, who worked in Brocade's HR department. Reyes' lawyers first attempted to block her testimony by arguing that it had only been partially revealed to them during evidence discovery, and that Weaver could not remember exactly when Reyes made the statement.

But Weaver was allowed to testify, and told the court that she remembered what Reyes said "very well," according to reports.


Our View

The US government must be admired for taking such a strong stand to protect the efficient and fair operation of the financial mechanisms that underpin the US economy.

But the anti-stock option fraud campaign is already facing the same sort of over-kill criticism than was generated by the Sarbanes-Oxley response to the WorldCom and Enron accounting scandals.

One Silicon Valley chief who has publicly condemned the DoJ's campaign as a "witch hunt" is Network Appliance CEO Dan Warmenhoven, who last year said that is doing more to harm than good to investor confidence.

Nevertheless a conviction of Reyes may encourage the DoJ to make some more examples of Silicon Valley chiefs. At least a few will be watching this trial with more than a little concern.


It is worth reading the whole article, but clearly there was something funny going on. It certainly doesn't look like the management had the long term interests of their customers, investors, or employees in mind. Are these statements representative of how the management was trying to build the company, or just on how they were trying to cash in quickly for themselves?

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