Brocade backdating options
The complaint also alleged that from 1998 through 2001 Mercury, acting through Landan, Abrams, and Skaer, fraudulently backdated the date of option exercises of certain senior Mercury officers.
Through Landan, Abrams, and others, the SEC said, Mercury “secretly managed” the company’s reported earnings per share to meet or exceed financial analyst expectations by manipulating the recognition of revenue and making fraudulent disclosures concerning its sales orders.
The company announced the in-principle deal with lead plaintiffs in a statement Monday, but the settlement remains subject to final approval by the U. District Court for the Northern District of California.
Brocade is one of eight companies in the past year to settle lawsuits brought by shareholders alleging stock options backdating led...
“Everybody is watching it with respect to how a jury will respond to these kinds of allegations,” said attorney Charles Ross, former head of the white collar defense group at Herrick, Feinstein LLP.
“It’s a pretty strong case for the defense, but if there’s a conviction, the Justice Department will be emboldened to bring these coin-toss cases” where the outcome is uncertain, he said. Experts said it may be difficult to convict Reyes because both sides agree he did not profit personally from the backdating, in which option grants were retroactively priced on days when Brocade’s stock was low, maximizing gains for employees.
The lack of a personal financial motive distinguishes the case from more-notorious securities-fraud cases such as Enron Corp ECSPQ. “If I were a prosecutor, I’d be reluctant to bring a case against a guy who didn’t make any money on the deal,” said Joseph Bartlett, an attorney at Fish & Richardson in New York and a former acting professor at Stanford Law School.He added, however: “I am fairly confident that we are going to see more options charges.” Complicating criminal backdating prosecutions of Silicon Valley companies are recent personnel changes in the San Francisco U. Attorney’s office, which took a leading role in such cases early on. The office’s former director, Kevin Ryan, was among federal prosecutors ousted last year in a Justice Department shake-up that has prompted a U. The Commission alleged that Mercury Interactive and the former executives “perpetrated a fraudulent and deceptive scheme” from 1997 to 2005 to award themselves and other employees undisclosed, secret compensation by backdating stock-option grants, failing to record hundreds of millions of dollars of compensation expense, and falsifying documents to further this scheme.Through Landan and at times Abrams, Smith, or Skaer, the SEC alleged, Mercury also made fraudulent disclosures concerning Mercury’s “backlog” of sales revenues to manage its reported earnings, and structured fraudulent loans for option exercises by overseas employees to avoid recording expenses.