First Options Backdating Scandal Charges Brought Against Brocade Communications

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Brocade Ex-CEO, 2 Others Charged In Options Probe

• Summary: Federal authorities issued civil and criminal securities-fraud charges yesterday against former CEO of Brocade Communications Systems (BRCD), Gregory Reyes. The charges relate to backdating options he doled out to hundreds of employees and concealing millions of dollars of compensation expenses from shareholders. That not only Mr. Reyes, who made no profits from the accusations, was charged, but also a former chief financial officer and former vice president for human resources at the firm, shows how seriously SEC Chairman Christopher Cox is taking current backdating investigations, which extend to more than 80 companies. Despite the prevalence of backdating scandals in the media recently, the current case is the first time charges were brought against a company for backdating options.
• Comment on related stocks/ETFs: Jack Ciesielski argues in his piece, The SEC Needs a Tougher Backdating Policy to Preempt Future Wrongdoing, that the current wave of options backdating scandals, like the current case involving Brocade Communications, is cause for the SEC to reevaluate its overall policy in this area and draft new guidelines.