By ERIC DASH and MATT RICHTEL AUG. Federal prosecutors scored a guilty verdict yesterday in the first options backdating case to go to trial, securing a conviction that is expected to embolden them to pursue similar cases.

Jurors in Federal District Court in San Francisco convicted the former chief executive of Brocade Communications Systems, Gregory L. Reyes, 44, on 10 counts of conspiracy and fraud. The verdict ended a five-week trial in which Mr. Reyes was accused of intentionally changing the grant dates for hundreds of stock option awards without disclosing the move to investors. Sentencing is scheduled for Nov. Under federal sentencing guidelines, Mr. Reyes could face up to 20 years in prison for the most serious charges as well as pay millions of dollars in fines.

The verdict sent shockwaves through Silicon Valley and law offices around the country, which are representing dozens of companies and executives who have been entangled in the widespread scandal.

In the wake of intense media attention, regulators cracked down on more than companies over the unlikely coincidence of stock options being granted again and again to executives and employees on dates when the share price was low — a tactic that guaranteed the maximum profit when the options were later turned into cash.

Backdating is illegal if the company does not properly account for the discounted grants as an expense.

The Securities and Exchange Commission eventually investigated about companies in connection with the practice, and federal prosecutors filed charges against at least five executives. Yet lawyers have long argued that these cases were more winnable as civil rather than as criminal cases, where the burden of proof is much greater.

Most of the backdating cases, including the one against Mr. Reyes, hinged on proving that the defendants knowingly manipulated an option grant date to defraud investors. But that claim can be obscured by the complexity of accounting issues. While lawyers on both sides acknowledge that these cases are difficult to win, the Brocade decision indicates that a guilty verdict is possible.

In the Brocade case, prosecutors presented evidence that Mr. During the trial, a former human resources employee testified that Mr. Prosecutors also said that Mr. Reyes had denied ever backdating stock options when he was questioned by investigators about the pattern of favorable grant dates. The lawyer for Mr. Reyes, Richard Marmaro, portrayed his client as a hard-working technology company executive who did not traffic in the accounting arcana of stock option grants.

Brocade, the defense argued, offered the low-priced grants as a way of attracting employees as the dot-com boom created an intense battle to hire talent. View all New York Times newsletters. Besides, defense lawyers argued, Mr. Marmaro did not return calls seeking comment.

Reyes, is expected to stand trial later. Several executives, including three at Take-Two Interactive Software, have pleaded guilty in backdating cases.

Brocade backdating scandal turns criminal | InfoWorld

Federal District Judge Charles R. Breyer had trial watchers on the edge of their seats when he took the unusual step of questioning whether prosecutors had produced enough evidence to show that Mr.

Reyes understood the accounting rules. Reyes failed to have the conviction set aside when Judge Breyer denied a motion to throw out the case.

Spotlight on Stock Options Backdating

Reyes appeared to backpedal during the trial about raising the issue of whether Larry W. Neither side called on Mr. Sonsini to testify in the case.

Many in Silicon Valley saw backdating as little more than running a red light.

Even yesterday, many who had closely followed the trial declined to comment — some were lawyers representing clients entangled in investigations while others had friends or business associates involved in cases.

To comment on the case, they said, would be tantamount to discussing politics or religion at dinner — it was not clear what friends or business partners they might offend who held a different view of the prosecution and conviction of Mr. But others in Silicon Valley said that the conviction sent a clear signal, not just that the government was taking the backdating issue seriously but that jurors were doing the same.

Gary Kremen, the founder of Match.

This is a topical issue that we see at the most rarefied valley technology companies. A version of this article appears in print on , on Page C1 of the New York edition with the headline: Backdating Conviction, A Big First.

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