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Gregory Reyes' Conviction: Setting The Bar For Other Trials?

Wednesday, 8 Aug 2007 | 11:49 AM ET
Former Brocade CEO Gregory Reyes
AP
Former Brocade CEO Gregory Reyes

A day after former Brocade CEO Gregory Reyes was found guilty on all 10 securities fraud charges brought against him, dozens of Silicon Valley executives--and hundreds of executives nationwide--faced with the same allegations, will have to re-think their defense strategies.

The sweeping verdict in the first-of-its-kind criminal case for the U.S. Justice Department sent a seismic ripple through this region yesterday. And the aftershocks will continue until we see the next trial begin, and the creative defenses that will now need to be constructed since the obvious ones didn't seem to work.

Reyes--and so many others--claimed no legal culpability because there was no personal financial gain. Buzzzzzzz. Wrong.

Reyes argued that he didn't know what his financial team was up to so therefore couldn't be held responsible for their actions. Buzzzzzzz. Wrong again. This jury apparently found that the buck really does stops with the CEO.

Reyes claimed ignorance about specific securities laws that he was apparently unaware that he was breaking. Buzzzzzzz. Wrong and wrong. The trial lasted six weeks. Hundreds of thousands of pages of exhibits. Seven full days of deliberation. This jury wasn't buying it.

So what happens next. There's been a fair amount of attention on Steve Jobs as the highest profile potential target for the feds. Not quite. True, the Justice Department investigation into him and his company continues, but the SEC already ended its investigation with action only against two of Jobs' underlings. Further, those feds lauded Apple for the company's tremendous cooperation during the investigation. Jobs used many of the same arguments that Reyes did: he didn't benefit personally; he didn't know what his finance lieutenants were doing.

But the Justice Department will likely lend a large amount of deference to the SEC's findings and despite the Reyes conviction, likely won't bring charges against the Apple chief. Still, what had been a dormant news story will likely rear its ugly head again for those bloggers and reporters looking for a story that likely isn't one.

Backdating Conviction
Former Brocade CEO Gregory Reyes was found guilty, and CNBC's Jim Goldman has the story.

That leaves over 200 companies that have acknowledged some essence of a stock options backdating investigation where CEOs, CFOs, HR VPs and many others might be on the hook for illegal activity. And not the civil kind that can be squared away with a nice fat penalty check. These are criminal charges. And a criminal conviction. Reyes was once a dot com superstar, riding the bubble to a massive personal fortune. Now he faces 20 years in prison. It's a stunning, surprising fall from dot com grace. Stunning because every legal expert I've talked to, outside the prosecution team, is very surprised by this verdict.

The Reyes case is indeed a stunner, in part because just a few weeks ago it seemed like the judge in the case was prepared to toss it. Yet in a filing made public only after the verdict was announced, the judge dismissed the defense notion that no rational juror could render a conviction based on the evidence presented. The judge, in his order, said there was indeed sufficient evidence for jurors to reach a verdict. That was a crushing blow to the defense.

But the real news will come with the success or failure of the government's NEXT case. Scott Schools, the lead U.S. attorney on this in San Francisco, says each case will have to stand on its own. This first one could not have been more important for him, his team; for the Silicon Valley where options are the life-blood of the industry.

But one verdict does not a trend make and this case will absolutely be appealed. Reyes will be sentenced Nov. 21.

Questions? Comments? TechCheck@cnbc.com

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