Update: Three Brocade Execs Face SEC Charges – Greg Reyes Has Also Been Indicted For Fraud See the SEC complaint here (Wall Street Journal Online subscription may be required).

No, Not Another Rant About Pricing
Today’s Wall Street Journal (subscription required) offers a couple of cautionary tales starring two major storage companies, Brocade Communications and Symantec. Brocade has become a poster child for the stock options dating scandal, detailed in a page one article. The Veritas acquisition’s problems are covered in another major article.

La Silicon Vida Loca
Silicon Valley was crazy in ’98-’01. Venture money was plentiful, the internet hot and growing fast enough seemed to be the only problem. Which led cash-poor but stock-rich companies to manipulate valuable stock-options to get and retain employees. Which Brocade reportedly did with abandon, including offering bogus part time employment to new hires to get them earlier option dates or, later, altering hire dates to make it seem executives had been hired later than they had been. According to the WSJ:

[Federal prosecutors] are considering bringing criminal charges against a former Brocade chief executive, Gregory L. Reyes, says a person familiar with the situation — in what would be the first criminal case in the spiraling scandal over the timing of options. The Securities and Exchange Commission also is considering civil charges in the matter, according to people familiar with the SEC probe. Mr. Reyes denies any wrongdoing.

That $67.9 million FY2000 profit? We meant a $951.2 million LOSS
Maybe, but it sure looks bad. Mr. Reyes lawyer says:

Financial gain is always the motive in securities fraud cases, and here, there was none. There is not even an allegation of self-enrichment. Nor is there any evidence of criminal intent.

I’m no lawyer, but given that Mr. Reyes sold $380 million of Brocade stock while investors believed the company was profitable, maybe the hope of “enrichment” clouded the man’s judgment. The good news, for him: he can afford all the justice money can buy. It’s likely not everyone else at Brocade is so lucky. If you only made a couple of million off Brocade stock and participated in the alleged schemes, the feds are likely to make your life miserable until you roll over.

Symantec’s Veritas Woes
Over at Symantec, ex-IBM’er John W. Thompson is busy trying to work the kinks out of his $10.2 billion Veritas acquisition, before he gets mowed down by Microsoft’s frontal assault on his core security business. I never understood why they bought Veritas (see Veritas Goes Quietly Into That Good Night) and this quote from the WSJ just deepens the mystery:

Mr. Thompson figured Symantec’s security software and Veritas’s storage software serve a similar purpose: protecting digital data.

Yikes! I’d always thought Symantec protected systems and Veritas protected storage. Each deals in bits, but so does Netflix, and he didn’t buy them.

Still, Symantec is showing some life: 4th quarter revenue grew 74% to $1.24 billion. I believe that resilient software-enabled infrastructures are the coming thing and that Veritas was the best-positioned to drive the market, but as I noted 18 months ago:

No, Veritas is MBA smart and marketing stupid. Does anyone believe that customers are happy with storage management software today, when 40% of backups fail, data disappears every day, and storage is far from a commodity based on the margins of storage system vendors? This all suggests a massive market opportunity, if only marketing can get their arms around it. But Veritas, despite excellent resources, smart people, great margins and a broad penetration into the F1000, couldn’t figure out what to do to grow their business.

Let’s hope Mr. Thompson is listening to the right visionaries at Symantec as he gears up for the fight of his life against Microsoft.