The charges would relate to Brocade Communications Systems Inc’s past handling of stock options, and will come within weeks, according to three sources cited by Business Week.
Alongside the US Securities and Exchange Commission, the US Department of Justice is also investigating a criminal case against Reyes, the magazine said.
I’m scared, Reyes told Business Week.
For some months, the DoJ and the SEC have been investigating the way Brocade accounted for and issued stock options in its fiscal years 2003 and 2004. The SEC is conducting similar investigations into several other IT suppliers, including IBM Corp.
But this may actually make things worse for Reyes, as it could tempt the SEC to make an example of somebody. As one lawyer quoted by Business Week said, Brocade is a leading candidate to become the Martha Stewart of options pricing.
Reyes says that he is innocent of any wrongdoing, and that seven current and former Brocade board directors have attempted to frame him in order to spare themselves.
What better way to do that than to throw me under the bus, he told Business Week. Reyes has threatened a civil lawsuit against the directors, and is considering a shareholder action, according to the magazine.
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The shareholder suit would be based on Reyes’ claim that the Brocade board’s internal audit committee investigation scotched a sale of Brocade to Cisco. He said that by November 2004 he was in the final stages of negotiating such a deal, but that the investigation scared off Cisco.
Reyes said that he persuaded to resign on the grounds that there was strong evidence against him. He said that later however he found that the evidence was not strong.
He was also told that Brocade’s auditors would not sign off the company’s books while he was CEO — but later concluded that this was because the board had misled the auditors about his actions.
In December, Brocade announced that its CFO Tony Canova had resigned, but gave no reason why. It was forced to appoint an acting CFO in his place.
There is no love lost between the SAN switch maker and its former CEO, who left the company early last year. Very soon after his departure, Brocade publicly and unabashedly admitted that it was attempting to claw back a six-figure consulting fee it had paid Reyes after he left the company — on the grounds that Reyes had failed to complete any consulting work.
Brocade, the SEC and Cisco declined to comment.
