As previously reported here, on August 7, 2007, a jury in a federal court in California convicted the former CEO of Brocade Communications Systems, Inc., Greg Reyes, of securities fraud in connection with the company’s failure to properly account for backdated stock options. On December 5, 2007 (as previously reported here), another jury in the same court convicted Brocade's former head of human resources, Stephanie Jensen, of falsifying corporate records and conspiracy, also in connection with Brocade’s backdating conduct. Reyes was sentenced to 21 months in prison and ordered to pay a $15 million fine, and Jensen was sentenced to four months in prison and ordered to pay a $1.25 million fine.

Reyes and Jensen have appealed their convictions to the 9th Circuit, which heard oral argument in both cases on May 12, 2009. Reyes argues that the government’s misconduct prejudiced the jury’s verdict. In particular, Reyes argues that the prosecution misled the jury as to a critical fact -- whether or not he deceived the finance department about Brocade’s backdating practices -- because the only witness the government produced on this issue may have provided false testimony. Notably, District Court Judge Charles Breyer previously denied Reyes’ motion for a new trial, based on this same argument, because he found that such testimony was likely irrelevant to Reyes’ conviction and because Reyes had failed to produce any witnesses to testify on this issue (as previously reported here). In addition, Reyes argues that the government’s case failed, as a matter of law, to establish that Reyes had committed a criminal securities violation.