Securities Law

Cooley Godward Chair Points Finger at Wilson Sonsini as Brocade Backdating Trial Opens

Gregory Reyes received backdated stock options while serving as the CEO of Brocade Communications Systems Inc.

But he can’t be convicted of a crime for doing so because he didn’t know what he was doing was wrong, argued chairman Stephen Neal of Cooley Godward Kronish yesterday at the opening of Reyes’ criminal trial over the practice, reports the Recorder.

And, in a rare instance of one well-known Silicon Valley law firm pointing the finger at another in such a case, Neal blamed Brocade’s outside counsel, Wilson Sonsini Goodrich & Rosati, for his client’s misunderstanding of accounting rules about backdating, the legal publication reports.

“Larry Sonsini, and the audit committee, and the directors of this company, knew backdating was taking place,” Neal told the San Francisco federal court jury, and “they never said that was a violation of an accounting standard.”

The government is arguing that Reyes’ intent to violate the law and knowledge of wrongdoing can be inferred from his initial denial that options were being backdated, reports the San Jose Mercury News.

Convicted in 2007 of conspiracy and fraud after his first backdating trial, Reyes won a reversal when the San Francisco-based 9th U.S. Circuit Court of Appeals found that the government misled jurors by falsely contending in closing arguments that no one in the company’s finance department knew about the backdating.

Additional and related coverage: “Prosecutors Want to Use Skadden Partner’s Media Statements in Ex-Client’s Retrial”

Reuters: “US accuses ex-Brocade CEO in backdating retrial”

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