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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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December 10, 2007 12:01 AM ET
A federal jury in the second stock option backdating trial last week convicted Stephanie Jensen, the former head of human resources at Brocade Communications, of two counts of criminal fraud for her role in the company’s backdating scheme. Prosecutors were able to win their convictions based on testimony and evidence that showed Ms. Jensen “knowingly” committed “wrongful” acts, even though she might not have known what specific laws she was breaking. By this standard, officers of publicly traded companies don’t need to know or understand securities law to break it—they just have to know, or expect that reasonable people would believe, their behavior to be wrong. “She’s not that different from the rest of us,” conceded juror Iris Hammer, 61, after the convictions were declared. Ms. Hammer works as a clerk in San Francisco Superior Court, just a few blocks away from the Federal Court building where Ms. Jensen’s case was tried. “It wasn’t easy—you’re talking about someone’s life—but we had to follow the law.” “It’s very scary,” said one observer in the courtroom last week, who asked not be identified because of his relationship to some defendants in other, pending backdating cases. “It opens the door to criminalizing a lot of behavior that might only be human error—‘Oh, I didn’t know that was against the law. Now I won’t do it.’” In cases where a company remains intact, this person added, “shouldn’t these cases be handled [as] civil matters? This isn’t Enron.” The government views such comments as armchair pundits splitting hairs. In a contradiction of the public debate over backdating, this case always was “a simple fraud,” assistant U.S. attorney Adam A. Reeves said in court. He, along with assistant U.S. attorney Timothy P. Crudo, successfully prosecuted both Ms. Jensen and Brocade’s ex-CEO (and Ms. Jensen’s former boss) Gregory L. Reyes. “Falsifying records is always wrong, and in this case [the dates] came from the bottom up.” Originally charged with eight felonies, Ms. Jensen was ultimately tried and convicted on two counts—criminal conspiracy to commit securities fraud and the act of falsifying Brocade’s books and records—for her role in an illegal employee compensation scheme that took place at the company between 2000 and 2004. In August, Mr. Reyes, the first executive ever to be criminally tried for these offenses, was convicted of 10 felonies for his role in the same matter. Until now, stock option grants, and the complexities of recording and accounting for them appropriately to regulators, have been assumed to be the domain of a company’s finance, accounting or legal departments. (Mr. Reyes’ own defense team made this argument in its effort to absolve the CEO of responsibility for what his lawyers dubbed stock option “administrivia.”) Certainly few people ever thought that an HR officer could be deemed responsible for it. But compensation paperwork, including employee offer letters and stock option grant forms, were originated and administered by Brocade’s human resources department—as they are at most public companies. In a streamlined case that began Nov. 26, in which arguments lasted only six days, the government successfully persuaded the jury that it was Ms. Jensen, as the head of HR, who directed and supervised her staff as they doctored stock option grant forms and meeting minutes of a special compensation committee of the board of directors (made up only of Mr. Reyes), thus creating records of events that, in fact, never took place. Here especially, Mr. Crudo argued in his closing, blaming the scheme on Mr. Reyes, or anyone else higher on the organizational chart, didn’t hold water because it was Ms. Jensen who actually determined the dates on which Brocade’s shares were trading at periodic lows, and it was Ms. Jensen who recommended to Mr. Reyes which of the dates ought to be falsely applied to Brocade’s stock option grant minutes. Perhaps in deference to the novelty of these trials, the judge in the case delayed Mr. Reyes’ sentencing until the conclusion of Ms. Jensen’s trial. Last week, Judge Charles R. Breyer set Mr. Reyes’ sentencing hearing for Dec. 19. He faces up to 20 years, each, for nine of his convictions, and five years for a conspiracy charge. The judge is widely expected to render a much shorter sentence. Ms. Jensen faces five years for conspiracy, but she may be able to avoid any incarceration for the books and records violation. In a quirk of the law, while she can be convicted merely for wrongful acts, people may not be incarcerated under Title 15 of the U.S. Code, Section 78, unless they have knowledge of the regulation they are actually violating. Her lawyers were not available for comment after the trial. A sentencing hearing for Ms. Jensen has not been set. FW
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