Image: Gregory Reyes
Paul Sakuma  /  AP file
Former Brocade CEO Gregory Reyes broke down in tears while speaking to the judge before his sentence was handed down.
updated 1/16/2008 2:12:56 PM ET 2008-01-16T19:12:56

The former chief executive of Brocade Communications Systems Inc. was sentenced on Wednesday to 21 months in prison for orchestrating a scheme to tamper with financial records of stock options the company offered.

Gregory Reyes, Brocade's CEO from 1998 to 2005, was also ordered to pay a $15 million fine.

At the sentencing hearing, U.S. District Judge Charles Breyer said Reyes obstructed justice in preparing for trial.

Reyes broke down crying while speaking to the judge before his sentence was handed down. He was released on his own recognizance until a federal appellate court can hear the case.

Reyes became the first executive to go on trial over stock options backdating when his case went before a federal jury in San Francisco in June 2007. He was convicted in August of 10 counts of securities fraud.

His case has been seen as an important test of how seriously infractions of options-related securities laws will be punished.

Prosecutors had recommended a sentence of 30 to 33 months in prison, a fine of more than $41 million and nearly $90 million in restitution to repay Brocade for its losses and legal fees connected to the case.

Reyes' defense team requested a sentence of no more than 13 months to a halfway house or home detention.

At least a dozen other executives have been criminally charged for options shenanigans at their companies as part of a federal Justice Department probe launched in 2006.

About 200 companies have been targeted by the Justice Department and Securities and Exchange Commission investigations, and many have had to restate their finances, erasing billions of dollars in previously reported profits.

The investigations have led to the ouster of dozens of corporate officers.

Backdating refers to the practice of selecting favorable grant dates in the past when the company's stock price was low and retroactively pegging awards to those dates.

The goal is to boost the recipient's potential windfall, but the schemes can have the effect of inflating a company's value when related expenses are left off the books.

Backdating is illegal only if it's not properly accounted for.

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