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Greg Reyes rose rapidly in the world of high tech to become CEO of Brocade at 36 and increased its revenues twenty-fold within three years-only to be felled by a miscarriage of justice.
In this deeply researched work, Donway shows how Reyes became the victim first of a board made fearful by the power of regulators; then of a frenzied media attack on backdated options; and, finally, of prosecutors who charged him with fraud.
These guidelines were “designed to maximize shareholder benefit,” and they instructed Fidelity managers to vote against plans that permitted a company to grant any backdated options. Tarallo, 380 F.3d at 1187-88 (discussing United States v. This provision is meant to ensure that criminal penalties would be imposed where acts of commission or omission in keeping books or records or administering accounting controls have the purpose of falsifying books, records or accounts, or of circumventing the accounting controls set forth in the Act.
Mc Cormick's and Catricks' testimony further established that improper accounting of backdated options presents investors with an incorrect picture of a company's finances. Garvey testified that Brocade's failure to expense more than 0 million from backdated options resulted in Brocade reporting profits in 20, when it should have reported large losses. Ed.2d 617 (1991), and financial structuring cases, see Ratzlaf, 510 U. Jensen also tries to distinguish Tarallo on the ground that she was charged with the provision that prohibits “knowingly” falsifying books and records, whereas the defendant in Tarallo was charged with violating a provision that was silent on the requisite level of intent. On the basis of the language and structure of the statute, there is no textual reason to hold “knowingly,” as used in § 78m(b)(5), was intended to modify or connote a higher scienter requirement than “willfully,” as used in § 78ff(a). To clarify the purpose of these paragraphs, therefore, the committee inserted the term ‘knowingly’ in appropriate places in both paragraphs (3) and (4).
The instruction required the jury to find that the statements were capable of influencing actions of accountants, and did not expressly reference investors. There was no question that Reyes signed off on stock option grants that were priced retrospectively, and that the backdating allowed Brocade to understate its compensation expenses. § 78m(b)(5) to other violations in which the word “willfully” requires knowledge of the law.
There is also a claim of instructional error with regard to the jury's finding that misstatements to accountants were materially false. The principal issue before the jury was one of intent. The knowledge required is that the defendant be aware that he is committing the act which is false-not that he know that his conduct is illegal.
The government relied on the expert testimony of three witnesses: (1) Steve Catricks, a portfolio manager and equity analyst at Delaware Investments, (2) Robert Mc Cormick, an employee who was a proxy lawyer at Fidelity Investments, and (3) Dr. Although Reyes now attempts to discredit the witnesses' testimony because they made no personal decision to invest in Brocade's stock, the standard of materiality is judged from the perspective of a “reasonable investor,” and is therefore an objective one. Catricks testified that granting backdated options inflates net income and earnings per share figures of the company, figures that Catricks stated he, as a reasonable investor, would want to know when he made his investment decisions. The district court correctly instructed the jury that it had to find that Jensen “was aware of the falsification and did not falsify through ignorance, mistake, or accident.” There is no higher standard for a willful violation of the securities laws. On its face, the provision means only that the defendant must knowingly commit the act of falsification. In an early version of the legislation, the Senate Report stated: The amendments to section 13(b) prohibiting the falsification of corporate books and records and the making of misleading representations to auditors are not intended to make unlawful conduct which is merely negligent.
The prosecution did not present any witnesses who actually invested in Brocade's stock. According to Mc Cormick, Fidelity frowned upon granting backdated stock options because they result in share dilution, and they have a less incentivizing effect on employees than stock options that are not backdated. Charnay, 537 F.2d 341, 351-52 (9th Cir.1976), and United States v. The “knowing” requirement protects those who accidentally record incorrect information because, for example, they are confused by accounting rules. A “knowing” falsification does not require knowledge of the securities laws being violated. This would include the deliberate falsification of books and records and other conduct calculated to evade the internal accounting controls requirement. The government did not, however, fail in its burden. During closing argument, the prosecutor did not confine his argument to the evidence before the jury or reasonable inferences that could have been drawn from that evidence. A lower-level Finance Department employee, however, Elizabeth Moore, testified for the government that she did not know about the scheme. Statements made to the FBI by responsible employees in the Finance Department during the FBI's investigation established that Finance Department executives knew about the backdating and that one employee had resigned as a result of it. In upholding a conviction for securities fraud in violation of 15 U.