The Securities Lawyer Blog has posted several times about the Securities and Exchange Commission's (SEC) prosecution of backdating cases and the difficulties the SEC has encountered in these proceedings.
Last month, we posted on the SEC's decision not to go forward with a civil action when former Broadcom executives were acquitted and criminal cases dismissed.
In another case the Securities Lawyer Blog has been following, the Ninth Circuit overturned the conviction of Gregory Reyes, who had been CEO of Brocade Communications Systems. The court found that prosecutors in the case had knowingly made false statements during closing arguments.
The SEC's woes with backdating prosecutions appear to be continuing. The Reyes retrial has been moving forward for the past two weeks in the United States Federal DIstrict Court, Northern District and defense counsel have requested that the trial court declare a mistrial.
The basis for the request is alleged prosecutorial misconduct. The defense is claiming that the prosecution "knew or should have known" that a key witness Stephen Beyer, formerly with Brocade's human resources department, provided false testimony.
The testimony at issue centers on Mr. Beyer's statements that his former employer, KLA-Tencor's stock options "auto-pricing" practice differed drastically from that at Brocade. The defense is claiming that this testimony is central to the prosecution's case as they have sought to establish that Brocade's employees had concern about the options backdating practices and that human resources employees had tried to suppress the audit trail.
However, the defense in the Brocade case claims that the two options pricing systems were not different, as evidenced by the SEC's suit against KLA-Tencor.
Judge Breyer has now been asked either to declare a mistrial or to strike Mr. Beyer's testimony from the record in the Brocade matter, which would fairly well disassemble the prosecution's case.
Related Web Resources
Background on options backdating can be found at the SEC's spotlight section on this issue.
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