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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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January 14, 2008 12:01 AM ET
STOCKADE OPTIONS Backdating ex-CEO faces up to 21 months for fraud.
The new evidence, Mr. Reyes’ attorneys had claimed, was their contention that a key witness for the prosecution, a Brocade finance employee named Elizabeth Moore, “did not provide accurate testimony at trial,” and more importantly, that she later “recanted” her “false testimony” to friends and colleagues. But in court last Wednesday, and in a tone emphatic with impatience, Judge Charles R. Breyer of the U.S. District Court for the Northern District of California cut defense lawyer Richard Marmaro’s arguments to shreds, saying the information revealed by Ms. Moore’s recantation was not new. “What’s new,” he said, “is that she feels badly about having testified in a particular way, and that’s not new evidence.” Mr. Breyer’s ruling was a crushing blow to Mr. Reyes’ last-ditch effort to stave off a prison term, coming exactly one week before he is scheduled to be sentenced on the 10 felony fraud convictions handed down by a jury last August. Mr. Reyes’ sentencing, twice delayed, is now set for Jan. 16. Mr. Breyer has already said that Mr. Reyes will be sentenced according to guidelines suggesting a prison term of between 15 and 21 months (prosecutors had proposed a potential term of more than 30 years). Mr. Reyes is likely also to pay millions of dollars in punitive fines. The drama over Ms. Moore’s alleged recantation, which emerged in December, caught on in the media, at first, because it seemed to undermine an important cornerstone of the government’s case against Mr. Reyes: that he had not relied upon financial or accounting experts to assess the wisdom and legality of Brocade’s option backdating scheme, but had instead kept the whole of his finance department, including his CFO and Brocade’s outside accountant, KPMG, in the dark about it. “He lied to them,” assistant U.S. Attorney Timothy Crudo told jurors in his closing arguments. “KPMG was just as much a victim in this case as the investors and everybody else who was lied to, including Elizabeth Moore.” In the finance department, Ms. Moore was the company’s stock plan administrator from 2000-04—the period during which much of the illegal backdating took place. In that role, she was responsible for taking data from employee stock option grant paperwork produced by the human resources department and entering it into Brocade’s finance database—the very database from which the company’s “false” books and records were ultimately produced and filed with the Securities and Exchange Commission. (In December, Stephanie Jensen, the former head of Brocade’s HR department and Mr. Reyes’ original co-defendant, was also convicted of two counts of fraud for her role in producing the false paperwork.) At trial, Ms. Moore testified that she “did not know” the stock option grants she processed during that period had been priced using “look-backs.” Since Ms. Moore was the only person from Brocade’s finance department to testify against Mr. Reyes, prosecutors relied heavily on her statements to make their case that Mr. Reyes was a near-rogue, acting only with the complicity of Ms. Jensen. Defending the government’s choice to call only a mid-level finance employee, rather than former Brocade CFO Mike Byrd and other higher level executives, (a tactic hotly criticized by the defense), Mr. Crudo told jurors at the original trial: “Now, Mr. Marmaro says, why didn’t the government call all these people from finance? How come? We called the people from finance who were involved in the process, Elizabeth Moore. And what did she say? She told you she was deceived. She had no reason to think that the [stock option grant] minutes were signed on any other date. Paperwork was just catching up. She said she didn’t know. She was deceived because [the] finance [department] was deceived as well.” But on Dec. 6 (the day Ms. Jensen was convicted), rumors began circulating that Ms. Moore felt Mr. Crudo had misinterpreted or “twisted” her testimony about who knew what and when, and that she wanted to recant what she’d said on the stand. A day later, Mr. Reyes’ attorneys filed a motion seeking a new trial. With it, the defense presented three affidavits from people who claimed Ms. Moore told them privately that she was sick, “shocked” and “an emotional wreck” over how her testimony played out and that it was all “screwed up.” One was Barbara Keller, a current Brocade employee, who claimed: “A few weeks after the verdict against Mr. Reyes…I spoke with Ms. Moore. She was upset and mentioned that the prosecution had twisted her testimony during the trial and made it sound different than what she had tried to get across to them.” Ms. Keller also said she considers Mr. Reyes a friend. A second affidavit, made on Nov. 14 by James Hulburd of Merrill Lynch’s private banking and investments department, is more to the point but less credible because he provides financial services to Mr. Reyes. He stated, “Ms. Moore told me that certain aspects of her testimony had not been truthful.… Ms. Moore said that while Brocade employees did not refer to the process as backdating, she and others in the finance department knew that Brocade looked back and picked favorable prices for employee stock options…when I asked her why she did not testify truthfully…she indicated that she was concerned about being fired from her job.” A third affidavit, making similar claims, was made by one of Mr. Reyes’ domestic employees. So what was Ms. Moore recanting, after all? Not much, according to Mr. Breyer, who determined that the fact that Ms. Moore may indeed have known that stock grants were backdated while she worked at Brocade was not new information. “I looked at the…notes of an FBI agent interview of Ms. Moore on or about Sept. 6, 2005,” he told the court. “She says that to [her] it looked like a low price was being picked.” The defense knew “well in advance” that “on a previous occasion Moore expressed [this] view,” Mr. Breyer asserted, because FBI notes are shared with both parties (though not always made public). Yet on redirect at trial “the defense chose not to ask her what she knew, [or] about what the finance department knew” about the look-backs. Rather than presenting new, and “impeaching” evidence likely to bring about an acquittal (a second standard to earn a new trial) in its motion, the defense merely presented evidence of its own lack of “diligence,” Mr. Breyer concluded. Ms. Moore’s post-trial anguish over how her testimony was used was probably never worthy of the hope defense attorneys put in it. “Trial lawyers, including prosecutors, are given wide latitude to argue about the meaning of witness testimony,” said George Stamboulidis, a former federal prosecutor who now heads the white-collar defense and corporate investigations practice for Baker Hostetler in New York. Witnesses don’t get a say in how a lawyer applies what they’ve said on the stand. What’s more, Mr. Stamboulidis said, if Ms. Moore did perjure herself, it was always worse news for her than it was good news for Mr. Reyes. “Is the fact that Ms. Moore was recanting things she said material to [Mr. Reyes’] case?” he asked. “Yes. But does it matter?” Not necessarily. “Finding out that one witness was a perjurer is unfortunate and disturbing, but the question is whether or not the [presence or] absence of her testimony would have been enough to change the outcome of the trial,” Mr. Stamboulidis concluded. “Is this new evidence that would produce an acquittal at trial?” Mr. Breyer asked the parties rhetorically. “I don’t think that at all.” Why? Because there is evidence that Mr. Reyes backdated, and yet “he denied it. He denied it to witnesses who did testify [that it took place], and we have Mr. Reyes’ declaration. He told me that he did not engage in backdating. Everybody knew that Mr. Reyes backdated except Mr. Reyes himself,” the judge said. He paused before closing with this shot: “When people say things to the court, they do have certain consequences.” Mr. Marmaro, the defense attorney, looked glum leaving the court room and declined, in an e-mail, to comment on the state of the case. Sources close to Mr. Reyes say he will continue to fight to overturn his conviction after sentencing. FW
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