In the wake of the successful prosecution of ex-Brocade CEO Greg Reyes, government prosecutors are trying their luck a second time -- this time with Brocade’s former vice president of human resources, Stephanie Jensen. On November 26, 2007, prosecutors offered opening arguments in the criminal trial of Jensen for conspiracy and falsifying corporate records. The key factual issue at trial will likely be whether Jensen was aware that Brocade’s stock option accounting practices were fraudulent.

This summer, a jury found Jensen’s former boss, Greg Reyes, guilty of securities fraud for improperly accounting for backdated stock options. Interestingly, Reyes’s conviction may not only have encouraged prosecutors to push forward with their case against Jensen, but may also play a significant role in the outcome of Jensen's trial. Earlier this year, Reyes “unconditionally promised” to testify at Jensen’s trial when U.S. District Court Judge Charles Breyer was deciding whether to hold separate trials for Jensen and Reyes. At that time, Jensen argued to Judge Breyer that holding separate trials would permit Reyes to testify at Jensen’s trial, and that this testimony would be critical in demonstrating that she had a merely administrative role in issuing and accounting for stock options. Now, however, given Reyes’ hopes for a successful appeal and/or favorable sentencing, he may no longer be willing to testify because of the risk of giving inadvertently damaging testimony. Moreover, even if Reyes testifies on behalf of Jensen, prosecutors will likely attack Reyes’ credibility given that he has been found guilty of securities fraud.

We will follow the second Brocade trial closely and will provide updates on InsureReinsure.com when significant developments occur.