In the first criminal prosecution of stock options backdating conduct, the parties have concluded their closing arguments and the case has been presented to the jury. Closing arguments focused on whether there was evidence that Reyes acted knowingly and intentionally. The defendant, former Brocade CEO Greg Reyes, could face prison time if the jury convicts him of improperly accounting for backdated stock options. Notably, however, Judge Breyer still has not ruled on Reyes’ motion to dismiss, and it is possible that he could still dismiss this case even if the jury convicts Reyes.
The SEC concluded its investigation of alleged stock-options backdating conduct by semiconductor-equipment maker, KLA-Tencor Corporation. The SEC has agreed to settle with KLA-Tencor for no monetary fine or penalty, a seemingly very positive result for KLA-Tencor. The SEC’s July 25, 2007 press release (available here) indicates that it agreed to a lenient settlement because of KLA-Tencor’s aggressive internal investigation and its “swift, extensive and extraordinary” cooperation with the government’s investigation.
Although KLA-Tencor appears to have emerged largely unscathed, its former CEO, Kenneth Schroeder, may not be so fortunate. On July 25, 2007, the SEC filed a civil action against Schroeder seeking disgorgement of allegedly ill-gotten gains, penalties and an injunction prohibiting him from future service as an officer or director of a public company. It appears that KLA-Tencor’s internal investigation may have indicated some wrongdoing on the part of Mr. Schroeder, prompting the SEC to bring the civil suit. Indeed, the investigaton apparently revealed an email from Mr. Schroeder to KLA-Tencor’s general counsel in which Mr. Schroeder rejected legal advice regarding proper accounting procedures for backdated stock options.
Brooks Automation, Inc.
On July 25, 2007, the SEC filed a civil action against the former CEO of microchip producer Brooks Automation, Robert Therrien. In addition, Therrien is being criminally prosecuted for tax evasion, apparently because Therrien himself received some backdated stock options, but failed to pay taxes on this unreported income.