Their work is now seen as having shed more light on how many tech companies manipulated stock-option grants by filing false financial information and sometimes even doctoring or making up meeting minutes -- even as some other legal experts argue that the agency has overreached by mistaking record-keeping and administration glitches for fraud.One of the investigation's first major cases ended this week when a federal judge in San Francisco sentenced ex-Brocade CEO Gregory Reyes to 21 months in prison and ordered him to pay a million fine. Reyes is the first CEO to be sentenced to jail time for his role in stock-options backdating.The article suggests that the difficulty and complexity of relevant options accounting rules put management in a position where they had to rely on outside lawyers and accountants for guidance.The defendants will argue that that their interactions with lawyer and accountants show that they did not intend to commit a crime.The difficulty for defendants trying to use this as a defense is that they will have to show that the attorneys or accountants were explicitly informed of the defendants’ behavior.Moreover, as Mark Fagel, the head of enforcement in the SEC’s San Francisco office, puts it in the article, “I’m skeptical of the claim that someone didn’t understand that there was an accounting issue when they created a false document.” In an earlier post (here) entitled “Is Backdating Criminal?
If the stock rises later, the recipient can cash in the option to take profit.
According to a prior article reports that the judge asked the Wilson Sonsini attorney at the hearing: “There is evidence out there that Mr. which officers utilized in granting backdated options.
Is it appropriate for you as the law firm to negotiate the settlement?
” Another company mentioned in the article is KLA Tencor, for whom Sonsini also apparently acted as outside counsel.
The article quotes a November 1998 email from KLA Tencor’s general counsel to Sonsini, in which the general counsel tells Sonsini that Pricewaterhouse Coopers accountants had approved a process by which the company’s stock options committee could meet “during the 30 days following August 31 and set the price for repricing at that time in order to maximize the value for employees.” KLA Tencor apparently has acknowledged that the August grant was backdated and has repriced those options.