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SEC ATTORNEYS FILL RINGSIDE SEATS AT BACKDATING TRIAL The Securities and Exchange Commission is a civil agency � when it brings fraud charges against a company or an executive, it’s not bound by the same standard of intent or knowledge as the Department of Justice is when it brings a criminal case. But the SEC has had at least three lawyers � and often a couple more � at just about every day of the criminal trialof former Brocade Communications CEO Gregory Reyes. That case, involving backdated stock options, is now in the jury’s hands, and no one’s too keen to predict which way it’ll go. While the company admitted to having options improprieties, the prosecution had a hard time proving that Reyes knew how to properly account for options. That challenge has gotten plenty of press, and the SEC has kept that issue in mind as it pursues new charges. “We look at these cases and we obviously know what’s going on with Reyes,” said Carlos Vasquez, an SEC staff attorney. “When you don’t have the e-mails showing knowledge, it’s very difficult.” Vasquez was speaking last week about a case he handled: On Wednesday, the commission announced that it had reached a settlementwith Integrated Silicon Solution Inc. and that company’s former CFO, Gary Fischer. While the company only agreed to an injunction against violating securities laws in the future, Fischer has to pay more than $500,000. In his settlement, the SEC outlined exactly why he should have known better. For example, in e-mails in 2000, Fischer explained exactly what kind of compensation charges the company could avoid by backdating options � and suggested trying to conceal the fact that they were backdated. “This is a case where you had a chief financial officer who you can show had knowledge,” Vasquez said. In the hazier Reyes case � where the government’s assertion that the defendant knew how backdated options should appropriately be accounted for rests on far softer ground � the jury was beginning its sixth day of deliberations on Monday morning. While the panel has given little indication of how it’s leaning, it requested readbacks of testimony last week that focused almost exclusively on whether Reyes had knowledge of the accounting requirements � and whether he tried to cover up the backdating.

Justin Scheck

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