Ex-Brocade Finance Chief Settles SEC Backdating Case - 7 Apr 2009

Ex-Brocade Finance Chief Settles SEC Backdating Case

By David Scheer

April 7 (Bloomberg) -- Former Brocade Communications
Systems Inc. finance chief Antonio Canova will pay $369,000 to
resolve a U.S. regulatory lawsuit over his role in the company’s
backdating of employee stock options.

Canova settled Securities and Exchange Commission claims
that he engaged in business practices that defrauded investors
and falsified records, the agency said in a statement posted to
its Web site yesterday. The SEC, which originally sued him in
2006, dropped an assertion that he knowingly committed fraud. He
didn’t admit or deny wrongdoing under the accord.

Brocade, the biggest maker of switches for data-storage
networks, restated results twice in 2005 and paid $7 million to
settle SEC claims it issued false financial statements. Former
Chief Executive Officer Gregory Reyes was convicted in 2007 of
conspiracy and fraud for backdating hundreds of option grants in
2001 and 2002. Prosecutors said he hid the practice from
auditors and investors, and inflated reported revenue.

Canova, who now works as a consultant, “is simply glad to
put all of this protracted litigation behind him and to devote
his energy to continuing his business career,” said his
attorney, Norman Blears. Canova was chief financial officer for
San Jose, California-based Brocade from 2001 until he resigned
in 2005, according to the SEC.

Retroactive Changes

Stock options let holders buy shares later, usually at the
trading price on the day they were granted. Through backdating,
companies retroactively change grant dates to those with lower
stock prices, giving recipients built-in gains. If not properly
disclosed, the practice may break laws by hiding costs from
shareholders.

Reyes has denied wrongdoing and said at his trial and in
court filings that he relied on members of Brocade’s finance and
human resources departments for stock-options policy.

Stephanie Jensen, the company’s former human resources
director, also settled SEC claims by agreeing to forfeit
$44,400, the SEC

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