Alleged Backdating Profit: $5 M for Ex-CEO

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Prosecutors contend backdating of stock options by Brocade Communications ex-CEO Gregory Reyes cost investors $12 million and put an extra $5 million in his own pocket.

The government set out alleged losses in a sentencing brief filed on Friday, the Recorder reports.

The tally: $7 million in government fines, $3 million in back-tax payments for the options, and $2 million for the stock drop after the company disclosed backdating problems. The brief asks a California federal judge to apply more recent—and more strict—sentencing guidelines.

The government also said Reyes personally made $5 million from his own backdated stock options, although it didn’t suggest a figure during Reyes trial.

Peter Henning, a Wayne State University Law School professor, said Reyes’ lawyers will likely fight the government’s attempt to bring the $5 million figure into the sentencing calculation. “The defense may argue that the government is trying to get in the back door what it couldn’t get through the front door.”

Experts told the legal newspaper that ex-CEO Gregory Reyes could get 10 years in prison under the government’s damage estimate. Reyes was convicted of securities fraud last month for backdating stock options.

CORRECTED 1:02 p.m. CDT to attribute quote to Henning.

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