Judge denies motion in Brocade case

A former Brocade Communications Systems Inc. executive who was convicted in a landmark stock options case won't get a new trial, despite a key prosecution witness recanting parts of her testimony, a judge ruled Wednesday.

U.S. District Court Judge Charles Breyer denied former CEO Gregory Reyes' motion for a new trial, saying the witness' new statements would not likely have changed the outcome of the trial.

Reyes, the first executive to go on trial over improperly accounting for stock options backdating, was convicted in August on 10 counts of securities fraud. A jury found that he doctored Brocade's options records to hide the true costs of those awards from investors.

Backdating refers to retroactively pricing stock option awards, picking a date when the stock price was low and making it appear the options were awarded that day.

The practice boosts recipients' potential windfall by allowing them to buy shares of the stock at a lower price. It's not illegal, but companies must properly record compensation expenses associated with the practice in their financial records — something that Brocade didn't do, which prosecutors argued made the company appear more profitable than it actually was.

Elizabeth Moore, Brocade's former stock administrator, testified at Reyes' trial that the company's finance department was kept in the dark about the practice. Her testimony was repeatedly cited by prosecutors as evidence Reyes knew what he was doing was wrong and tried to prevent others from finding out.

However, according to Reyes' defense team, Moore now says she lied on the stand because she felt bullied by prosecutors and was afraid of losing her job. She says Brocade's finance department was well aware of the backdating, according to declarations filed by friends and colleagues of Moore.

Moore has refused to testify again unless she is granted immunity from perjury prosecution.

Breyer said Moore's new stance isn't enough to warrant a new trial, which hinged on whether Reyes had criminal intent when he altered Brocade's corporate records and whether he intended to defraud investors.

"It's not new," Breyer said. "What's new is she feels badly for testifying in a certain way. That's not new evidence."

Reyes is scheduled to be sentenced Jan. 16. He faces 15 months to 21 months in prison.