Until last Friday, Greg Reyes, Brocade's former CEO, had been unable raise an important aspect of his defense: Brocade was only one of many companies that allegedly manipulated stock options grants. Throughout Reyes' trial, defense counsel has argued that Reyes believed in good faith that Brocade had been properly accounting for stock options grants. This defense is bolstered by the fact that many other companies had engaged in similar conduct. However, for evidentiary reasons, Judge Charles Breyer had not permitted the jury to learn of the widespread nature of similar stock option practices in public companies.
On Friday, the government called Steven Catricks, a portfolio manager for an investment fund, to testify that investors rely on a company's full and accurate disclosure of its stock options expenses. Defense counsel then successfully argued to Judge Breyer that this testimony permitted defense counsel to ask Catricks about companies other than Brocade that had engaged in similar conduct. On cross examination, Catricks admitted that "a lot of corporations have problems similar to Brocade."
Defense counsel also may have strengthened its argument that Brocade's alleged stock option manipulation did not injure investors. On cross examination, Catricks admitted that the stock price of another company with stock options issues, Broadcom, actually went up when that company announced its restatement of its financial statements to correct the inaccurate recording of stock options expenses. Catricks further admitted that his investment fund decided against selling a large number of companies with stock options issues.