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SAN FRANCISCO � It must have come like a bolt from the blue for the defense in the criminal backdating case against Brocade Communications Systems Inc.’s former head of personnel. Buried on page three of the government’s pretrial conference memo, just days before the start of the Nov. 19 criminal trial, federal prosecutors announced that they would drop four of the last six remaining counts against Stephanie Jensen, former vice president of human resources. The dropped charges were the most serious: securities fraud and making false filings with the U.S. Securities and Exchange Commission (SEC). The government previously axed two mail fraud counts from the original 2006 indictment. What’s left are two of the narrowest charges, a single count of conspiracy to falsify company books, and one count of falsifying books and records. National fanfare But that is not how the case began. To national fanfare in July 2006, the government announced the first criminal backdating indictment. It charged two Brocade executives, Jensen and Chief Executive Officer Greg Reyes, in a 12-count indictment. The press conference drew SEC Chairman Christopher Cox to San Francisco to appear with former U.S. Attorney Kevin Ryan to announce the charges. Cox said at the time that stock-options practices at 80 companies were under investigation. That list later grew to 140. The threat of possible criminal stock-options backdating charges roiled the business community, particularly California’s Silicon Valley, which has relied on stock options to lure employees to risky new ventures. Despite the subsequent indictment of other CEOs, corporation lawyers and financial officers, Jensen remains the only human resources vice president to be criminally charged. Commenting on the dismissed counts, Jensen’s attorney, Jan Nielsen Little of Keker & Van Nest in San Francisco, said, “I am surprised, and I believe they should dismiss the entire case.” She declined to discuss the specifics of the case. Assistant U.S. Attorney Tim Crudo, the prosecutor in both the Reyes and Jensen cases, declined to comment. The only indication of the decision to drop charges came in one sentence in the 13-page pretrial memo. “At this time, the government moves to dismiss and will also dismiss counts two, five, six and seven,” it states in U.S. v. Jensen, No. CR06-556CRB. It was disclosed during a Nov. 2 pretrial conference and caught U.S. District Judge Charles Breyer by surprise as well. He agreed to dismiss the counts in an order posted on Nov. 6 by the court. Reyes was convicted on all 10 counts of conspiracy and securities fraud stemming from backdating at the conclusion of a five-week trial in September. Jurors deliberated six days. His trial was severed from Jensen’s early on and, at that time, Reyes pledged to testify in her defense, if called by the defense. His sentencing has been pushed back until after Jensen’s trial. He faces up to 20 years in prison. The indictment alleges that Jensen and Reyes systematically granted extra compensation to Brocade employees between 2000 and 2004 by granting in-the-money stock options while making it appear that the options had no intrinsic value. An option is the right to buy a stock for a set amount � the exercise price � within a certain period of time. Normally, the exercise price is the stock’s market price on the day the option is granted. Backdating allows company leadership to cherry pick the most favorable exercise price.

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