With Judge Breyer having postponed ruling on his motion to dismiss until at least July 19, ex-Brocade CEO Greg Reyes' defense has gone forward this week. Among the defense's witnesses this week were two of Brocade's founders, Seth Neiman and Paul Bonderson, and Jason Gold, formerly a fund manager at one of Brocade's top investors.
Messrs. Neiman and Bonderson appear to have been called to shore up the defense's argument that Reyes was not intimately involved in or aware of the accounting issues created by Brocade's backdating of stock options. Mr. Bonderson, in particular, testified that Reyes "was a great CEO" and that Brocade's former CFO, not Reyes, was primarily responsible for devising the company's stock options programs.
Mr. Gold's testimony addressed a different aspect of Reyes' defense: whether investors were harmed by Brocade's inaccurate disclosures regarding expenses attributable to stock options backdating. To the contrary, Mr. Gold testified that, when analyzing potential investments (such as Brocade), he would exclude from his analysis non-cash items that were irrelevant to the company's core operations, such as expenses due to stock options: "I considered them and removed them from my numbers."
The trial will now go on recess while Judge Breyer attends a conference in Hawaii. Still to come is the expected testimony of David Gully, an expert witness specializing in economic modeling regarding the effect of stock options backdating practices on the stock market.
Judge Breyer has indicated that he may issue a decision on the defense's motion to dismiss on July 19. However, it would be somewhat unusual for Judge Breyer to grant the motion at this stage rather than send the case to the jury first.
InsureReinsure.com has been following the developments in this trial, the first criminal trial arising out of the stock options backdating scandals. You can read our prior posts here:
The Brocade Criminal Trial: Former Employee Testimony Damaging to Reyes
The Brocade Trial: The First Two Weeks
The Brocade Trial: An Important Defense Gets in the Door
The Brocade Trial: The Prosecution Rests
The Brocade Trial: Judge Breyer May Take Case Away From Jury
The Brocade Trial: Judge Breyer Postpones Decision on Motion to Dismiss and Orders The Defense To Proceed