As previously reported, here, on August 8, 2007, a jury convicted ex-Brocade CEO Greg Reyes for violating federal securities laws by failing to properly account for backdated options. On August 18, 2009, the Ninth Circuit reversed Reyes’s conviction based on prosecutorial misconduct (but did not dismiss Reyes’ indictment).

Specifically, during trial, Reyes argued that he relied on Brocade’s finance department to ensure that Brocade’s books and records were accurate. Reyes also argued that the finance department had been aware of Brocade’s backdating practices. During closing arguments, the prosecution represented to the jury that the finance department “did not have any idea” that backdating was taking place. According to the Ninth Circuit, however, the prosecutors had been aware that employees of the finance department, in interviews with the FBI, had acknowledged that they were aware of Brocade’s backdating practices. The Ninth Circuit further noted that the prosecution, on appeal, did not “seriously dispute” that it had made a misstatement during its closing argument.

It remains to be seen if the prosecution will re-try its case against Reyes. The next high-profile options backdating criminal trial, against former KB Home CEO Bruce Karatz, is currently scheduled to begin in February 2010.

A copy of the Ninth Circuit's opinion can be found here.