Found guilty on all 10 counts
Greg Reyes, former CEO of Brocade, was convicted today of all 10 counts he was charged with of criminal securities fraud for backdating stock options and lying about it in a San Francisco courtroom. He faces 20 years in prison.

Mr. Reyes made some $380 million dollars off Brocade during the dot com boom. What investors didn’t know is that if he had followed the proper accounting rules Brocade’s $67 million FY2000 profit would have been a $950 million loss, at least on paper. Options are a non-cash expense, but so are a lot of other things that show up on income statements.

None of the backdated options went to Mr. Reyes
His defense claimed that he was a sales guy and didn’t understand accounting enough to know that backdating options and falsifying board minutes was a no-no. But the “everyone was doing what I didn’t understand” defense failed to persuade the jury.

As I noted last July

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.

Evidently a similar thought occurred to the jury.

The StorageMojo take
This has no impact on the Brocade of today, other than their culture is a direct descendent of the company that Mr. Reyes built. Like EMC, Brocade was a sales-focused culture with a “whatever it takes” mentality. They achieved fast growth for a time but are floundering because they handed their future over to storage OEMs who could care less if Brocade lives or dies. Their strategy is in worse disarray than EMC’s while their core fibre channel business is starting to decline.

I hope they can turn it around, but I’m more than dubious. Most of the world doesn’t need fibre channel and there are better places to buy Ethernet and Infiniband.

Comments welcome, as always. If Brocade is stronger than I know, please elucidate.