Brocade to pay $US7M to settle with SEC

Brocade agreed to pay $US7 million to settle stock-option backdating charges.

Brocade Communications Systems has agreed to pay a $US7 million penalty to settle charges of stock-option backdating fraud.

The payment will settle a civil action brought by the U.S. Securities and Exchange Commission and comes with a permanent injunction against the storage networking company not to break various accounting laws. The SEC's action, announced Thursday, signals that the agency will take strong action against companies accused of backdating fraud. Scores of high-tech companies have either come under federal investigation or started their own probes related to the practice.

Former Brocade executives granted tens of millions of stock options to employees and falsified the dates of those grants so they could hide the cost of the options from shareholders, the SEC charged. Brocade did not admit to or deny the charges. The settlement concludes the SEC action, and Brocade said it does not expect the Department of Justice to take any action against it.

"Falsifying compensation expenses is no less misleading to investors than falsifying revenue," said Linda Chatman Thomsen, director of the SEC's enforcement division, in a statement.

Brocade's former chairman, president and CEO, Gregory Reyes, as well as former human resources chief Stephanie Jensen and former Chief Financial Officer Antonio Canova, were charged last July with fraud and other securities law violations.

"The SEC will use all the weapons in our arsenal, including significant corporate penalties, to protect investors and combat fraudulent stock option backdating," SEC Chairman Christopher Cox said in a statement.

Backdating is legal and was a common practice in the fevered high-tech job market of the late 1990s as vendors competed for talent with attractive financial packages. But some of the biggest names in IT, including Apple, Broadcom and McAfee, have been hit by concerns over how they carried it out.

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