Brocade communications systems backdating
Despite the significant differences between our sentence lengths, I had a great deal of empathy for Greg because as I listened to him, I became convinced that his imprisonment represented a severe injustice.
From my perspective, our criminal justice system has lost perspective when those within it work to incarcerate citizens for decisions they make during the course of business, especially when those decisions lacked any criminal intent and any effort at self enrichment.
There are three major areas of potential criminal liability for former executives involved in stock options backdating: securities fraud, tax fraud, and mail or wire fraud. Backdating only becomes illegal when executives fail to disclose the practice in financial reports, and fail to properly account for backdated options according to Generally Accepted Accounting Principles (GAAP) and the relevant tax laws. Three possible violations of the Internal Revenue Code ('Code') could create criminal liability for backdating: (1) exceeding the compensation deduction limits of Section 162(m), (2) failing to qualify options under the rules that govern incentive stock options in Section 422, and (3) violating the provisions of Section 409A regulating deferred compensation.
Although this practice gave the senior executives significant stock holdings, since the grant was issued at-the-money, the share price had to appreciate before the executives would actually earn a profit.
A 1982 amendment to the tax code created an incentive for executives and their employers to work together to break the law.
In that capacity, he did his best to create value by turning a high-technology start-up into a world-class corporation that would create enormous value for shareholders, customers, and employees. It was one of the hottest technology companies during the euphoric times that preceded the turn of the century.
With its fiber-optic networking products, Brocade unlocked storage capacity for its customers, enabling them to both make and save money.