Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Everyone stayed in character for the last full day of the first stock option backdating trial. There was Adam Reeves, the sardonic assistant U.S. attorney, who delivered a closing argument emphasizing the simplicity of the fraud case against former Brocade Communications CEO Gregory Reyes. “When you cut through to the core, this is not a complicated case,” Reeves said, framing an argument that relied on the notion that, as CEO and the person who signed off on Brocade’s financial forms, Reyes had to know that stock options were routinely backdated. Reeves ridiculed Reyes’ “committee of one” for granting backdated stock options, saying the defendant “didn’t meet with himself” on the dates he claimed to in options documents. On the other side, Richard Marmaro – the Skadden Arps Slate Meagher & Flom partner defending Reyes – was animated in his own ridicule of the argument offered by the prosecutor. “He is the only person who thinks this was simple,” Marmaro said, repeatedly pointing out that more than 130 companies have admitted to getting the accounting rules wrong. He also pointed at Reeves to accuse him of being the only one to claim Reyes knew how those rules work. Then there was the judge, Charles Breyer, who, true to form, pounded on each side by questioning their tactics. Throughout the seven or so hours of closing arguments, the jury – with the exception of one alternate juror, who over the past month has spent nearly as much time ogling the audience as watching the lawyers – was inscrutable, appearing attentive and not visibly more favorable to either side. One can assume, though, that the jurors were happy with the case’s schedule: It’s wrapping up almost a month faster than predicted. That’s due to the bold decision by the defense over the last couple of weeks to drastically truncate its case. After telling Breyer that they planned to bring five weeks’ worth of testimony in the case, Reyes’ lawyers pared down their witness list – deciding against bringing top Silicon Valley lawyer Larry Sonsini, a former Brocade board member – in response to a prosecution that didn’t put any top Brocade executives on the stand. The judge had told prosecutors that he had seen little evidence presented to indicate that Reyes knew his conduct was wrong. While Breyer declined to rule on a motion to dismiss before the case wrapped up, his reaction seemed to set the stage for closing arguments. In his forceful two-hour argument, Reeves immediately jumped on the issue of Reyes’ knowledge. Even before he began, he set up an easel with a blown-up poster-board version of a key piece of evidence: an e-mail that Reyes sent to an executive at another company that said “it is illegal to back-date option grants.” Reeves presented a tightly packaged list of 10 reasons Reyes understood that backdating options was wrong. These included Reyes’ signing of an annual report and a letter to auditors that said, incorrectly, that the company accounted properly for stock options and kept accurate meeting minutes. Reeves mocked the assertion that Reyes didn’t fully read the annual reports he signed. “That defense is the corporate equivalent of the dog ate my homework,” the prosecutor said. “It didn’t work as a kid, and it shouldn’t work here.” Reeves ended the list by saying that Reyes told a lawyer from Morrison & Foerster – who was hired by the company’s board in 2004 to investigate options improprieties – “that he understood the accounting implications of in-the-money options.” The prosecutor also spent several minutes discussing the testimony of June Weaver, a former HR official at Brocade who testified that Reyes told her “it’s not illegal if you don’t get caught.” That testimony was the source of much courtroom attention – first because the defense argued it shouldn’t be admitted, and afterward because Weaver was unable to remember whether Reyes was talking about options. Nor could Weaver answer virtually every follow-up question, including basic ones about corporate finances. In his own summation, Marmaro belittled Weaver’s testimony, questioning her lack of memory and her willingness to accept backdated options. (She said it was OK because she made money from them.) He also questioned her assertion that she’d expressed concerns to ex-Brocade human resources director – and Reyes’ co-defendant – Stephanie Jensen about options backdating, noting that she’d never mentioned it in prior interviews with law enforcement. “June Weaver simply cannot be believed,” Marmaro said. That was far from the sole point Reyes’ lawyer made on Thursday. Indeed, the defense attorney never needed to pause during a three-hour recitation that he seemed to have committed to memory. It was geared to show that options accounting was complicated, that Reyes delegated the accounting duties to others at the company, and that – even with the company’s financial restatement – investors didn’t care about noncash options expenses. Both sides discussed the nature of the other’s witnesses, with Marmaro repeatedly observing that the government did not elicit testimony from several witnesses who were intimately involved in Brocade’s options administration, and whom Marmaro blames for the company’s improprieties. For example, he said that former CFO Michael Byrd masterminded Brocade’s options program. Byrd, who was granted temporary immunity by the government to testify – and whom Marmaro called “the architect of the stock-options program at Brocade” – was one of several former finance executives who never materialized in the case. Marmaro also talked extensively about former Brocade Controller Robert Bossi, who, he said, knew about the backdating and saw no problem with it. Prosecutors kept these witnesses off the stand, he said, because their knowledge of the options practices would show that Reyes didn’t mastermind a scheme to defraud. “If they call Bob Bossi, their house of cards would fall,” Marmaro said. Once Marmaro finished for the day – he’ll give another hour of arguments today, before the government offers its rebuttal – Breyer expressed concern that the defense inappropriately offered the hypothetical statements of witnesses it had never called. “I’m sitting here amazed listening to the evidence, and I’m absolutely amazed,” Breyer said. But Marmaro said they were not called because their immunity deals with prosecutors meant that they would invoke their Fifth Amendment right against self incrimination – which Assistant U.S. Attorney Timothy Crudo acknowledged when Breyer asked. But Breyer said that if the issue had come up in trial, he might have compelled them to testify. In the end, he asked both sides for briefing on the issue, and said he might offer an instruction to the jury to be skeptical of Marmaro’s assertions about the witnesses. This article originally appeared in The Recorder, a publication of ALM.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.