The appeals court didn't reject all of the government's arguments. The ruling supports the government's theory that backdating caused material harm to investors. The argument was never considered a slam dunk because of the difficulty in showing how granting stock options to employees at low prices harmed stockholders.
"This decision says more about the court's current view of prosecutorial conduct than it does about options backdating," observed Daniel Bookin, the head of O'Melveny & Myers' white-collar practice, who was not involved in the case.
JENSEN'S SENTENCE TOSSED
In the same opinion, the appeals court affirmed Jensen's conviction, but vacated her four-month prison sentence because the trial judge, Charles Breyer, "improperly included an obstruction of justice enhancement for which the reprehensibility lay primarily with the lawyer."
In her bid for a separate trial, Jensen's lawyer -- Jan Little of Keker & Van Nest -- solicited a sworn declaration from Reyes stating that no backdating had occurred at Brocade. Breyer granted the severance motion so Reyes would be free to testify for Jensen.
At Reyes' own trial, though, his lawyers asserted that backdating had in fact occurred, but that Reyes was unaware it was wrong. He wasn't called to testify at Jensen's trial. Citing the sworn declaration and the effect it had on the motion for separate trials, Breyer slapped Reyes with six extra months in prison for obstruction of justice. The judge applied a similar enhancement for Jensen, which translated to a year of supervised release plus four months in prison.
Little said on Tuesday that her client never should have been punished over Reyes' declaration.
"As we argued before the Ninth Circuit, counsel is responsible for the declaration -- not the client," Little said. "However, we maintain that Greg Reyes' declaration was not false."
THE FUTURE AND PAST OF BACKDATING
In three criminal trials against high-profile backdaters, the Northern District U.S. Attorney's Office now has just the Jensen conviction standing. A jury acquitted McAfee General Counsel Kent Roberts last fall. Although dozens of Silicon Valley companies restated earnings due to backdating, no other executives were charged criminally.
O'Melveny's Bookin said the fact that Reyes was singled out is part of the larger context for the 9th Circuit ruling.
"The court could not help but be aware that Greg Reyes was convicted and sent to jail for alleged conduct far less egregious than that of many executives who were never prosecuted," Bookin said.
Now the office will have to decide whether to retry Reyes. Criminal lawyers said it will be a tough decision most likely to be made by the next appointee to lead the office.
"On the one hand, in prosecutor-think, you charge the CEO with wrongdoing, so your view of this is, 'You shouldn't get off because of prosecutorial misconduct,' so you do it again," said Michael Shepard, a white-collar defense lawyer with Hogan & Hartson and a former federal prosecutor. "The enlightened defense lawyer view is, 'Hey, you sent this guy to jail wrongly -- enough is enough.'"