Rich-Hunt is the most comprehensive study to date of the interaction of business, law, and journalism in the backdated options episode.
It is a case study of prosecutorial misconduct and the tendency of the media to be an echo chamber for accusations against businesses.
On August 10, 2006, the government charged Reyes and Jensen with securities fraud, falsification of corporate books and records, and violating related statutes and regulations. § 371; securities fraud and making false filings with the Securities and Exchange Commission (“SEC”) in violation of 15 U. He also sought a new trial on the separate basis of what he asserted to be a recantation of Elizabeth Moore's testimony that she did not know about the backdating. Earlier, the court had denied a motion for directed verdict for insufficiency of the evidence to establish materiality, i.e., that knowledge of the backdating would have affected the judgment of a reasonable investor. The Jensen Trial In the Jensen trial, the principal issue was whether she knew that this was a fraudulent scheme and whether she possessed a criminal intent.
Their cases were severed for trial and represented the first such prosecutions to go before a jury. The Reyes Trial The jury convicted Reyes of conspiracy in violation of 18 U. The district court sentenced Reyes to 21 months' imprisonment, and imposed a million fine. Jensen sought an instruction that would have required the jury to find she knew what law she was violating, i.e., to find that the falsification was done “with the purpose of violating a known legal duty.” The district court instead instructed the jury that it must find the government proved Jensen acted “knowing the falsification to be wrongful.” United States v.
We reverse Reyes' conviction because of prosecutorial misconduct in making a false assertion of material fact to the jury in closing argument. § 240.13b2-1; and making false comments to auditors in violation of 15 U. Other, higher-up Finance Department employees, however, had given statements to the FBI describing their knowledge of the backdating scheme. At sentencing, Jensen also argued she was within the provision of the penalty statute that exempts a defendant from imprisonment for violating a regulation if the defendant “had no knowledge of such rule or regulation.” 15 U. Her lawyer had obtained a severance of Jensen's trial from Reyes' on the basis of Reyes' false declaration stating that Jensen was without any culpability, that Reyes had told Jensen that there was no backdating, and that Reyes would testify at Jensen's trial if the trials were severed. The district court was understandably annoyed that the court had had to preside over two trials and had been misled by the false declaration. If the government failed in its burden to establish the materiality of the falsification, then the prosecution must be dismissed, and no new trial would be possible. In denying the defense's motion for a new trial, the district court focused not only on the prosecutor's misstatements, but on defense counsel's performance as well. For example, the SEC complaint charging Michael Byrd, a Chief Financial Officer at Brocade, did not state that Byrd was “deceived” regarding the stock option grant given to Brocade employee Richard Geruson, as the prosecutor had argued during closing argument during Reyes' case. Attorney's Office and SEC Separately Charge Former Brocade CEO and Vice President in Stock Option Backdating Scheme (July 20, 2006), The prosecution is legally charged with responsibility for information uncovered in its civil investigations and may be required to disclose it in criminal cases that it prosecutes. The record demonstrates that the prosecution argued to the jury material facts that the prosecution knew were false, or at the very least had strong reason to doubt. Moreover, the statements were made during closing arguments, both orally and visually, and closing statements from the prosecution “matter a great deal.” Kojayan, 8 F.3d at 1323.
We affirm Jensen's conviction but vacate the sentence and remand for resentencing because the sentence improperly included an obstruction of justice enhancement for which reprehensibility lay primarily with Jensen's lawyer. Facts and Procedural Background Gregory Reyes was the Chief Executive Officer (“CEO”), and Stephanie Jensen was the Vice-President of the Human Resources Department, of Brocade Communication Systems, Inc. The company is publically traded and engaged in the high-tech business of developing and selling network equipment and providing networking solutions. Both prosecution and defense counsel were familiar with these statements. It imposed the obstruction of justice enhancement because Jensen was present in the courtroom when her attorney argued the motion to sever and did not interfere with her lawyer's presentation of the false declaration. Defense counsel had told the jury that the Finance Department did know, and told the jury that the Finance Department executives would have so testified if they had been called. Rather, the civil complaint charged that Byrd acted with knowledge of the backdating of Geruson's grant. Reyes objected below and therefore preserved the issue. Deliberate false statements by those privileged to represent the United States harm the trial process and the integrity of our prosecutorial system.
Despite the prosecutors' failure to establish that someone was misled, the central point required for a charge of fraud, Reyes was convicted and sentenced to 18 months in prison and a million fine.
SCHROEDER and STEPHEN REINHARDT, Circuit Judges, and LOUIS H. Amber Rosen, San Jose, CA, for the plaintiff-appellee. Waxman, Washington, DC., for defendant-appellant Gregory L. The options were backdated to a time when the company's stock price was low, but the options were not recorded on the company's books as an expense of the corporation, so the books showed the corporation to be more profitable than it was. The government witnesses provided evidence as to how this scheme operated and how Reyes participated in the scheme. The district court declined to hold she was within the “No Knowledge Clause,” and sentenced her to a term of imprisonment of four months. The issue that is dispositive of Reyes' appeal concerns the government attorney's misconduct in falsely telling the jury that the Finance Department did not know about the backdating, when the prosecutor knew that their statements revealed that they did. ” The government even displayed for the jury a diagram explaining the prosecutor's position that the Finance Department did not know of the backdating. Bossi and Canova even discussed discovering specific instances of inconsistencies in stock option paperwork, and attributed the errors to Reyes' backdating practice. At the end there was considerable focus on the issue of what the Finance Department knew.
The convictions represent the first criminal convictions for a backdating practice that was widespread in the late 1990s, particularly in the Silicon Valley, where the appellants' company was located. One of the witnesses, Elizabeth Moore, who was an employee of the Finance Department and who administered Brocade's stock options, testified that she and other members of the Finance Department did not know that the backdating was occurring. Jensen's term included an enhancement for obstruction of justice for her lawyer's reliance on a declaration made by Reyes. There is a threshold issue, however, of whether the government satisfied its burden of proving that the false records would have affected the judgment of a reasonable investor. The prosecutor asked the jury to assume other employees of the Finance Department would testify that they did not know about Reyes' backdating procedure when the prosecutor knew they did. Moreover, in civil suits brought by the SEC, parallel evidence was produced about the knowledge of Finance Department executives. It is charged with knowledge of the parallel SEC investigation. The prosecutor's false statements went directly to this issue.
Gonzalez-Torres, 309 F.3d 594, 598 (9th Cir.2002) (citation omitted), permitted a rational trier of fact to find beyond a reasonable doubt that the omissions and misstatements were material to a reasonable investor. We therefore turn to whether prosecutorial misconduct requires a new trial. The committee does not, however, intend that the use of the term ‘knowingly’ will provide a defense for those who shield themselves from the facts.
The witnesses' testimony, taken cumulatively, and in the light most favorable to the prosecution, United States v. The committee believes that the inclusion of the ‘knowingly’ standard is appropriate because of the danger, inherent in matters relating to financial recordkeeping, that inadvertent misstatements or minor discrepancies arising from an unwitting error in judgment might be deemed actionable.
These guidelines were “designed to maximize shareholder benefit,” and they instructed Fidelity managers to vote against plans that permitted a company to grant any backdated options. Tarallo, 380 F.3d at 1187-88 (discussing United States v. This provision is meant to ensure that criminal penalties would be imposed where acts of commission or omission in keeping books or records or administering accounting controls have the purpose of falsifying books, records or accounts, or of circumventing the accounting controls set forth in the Act.
Mc Cormick testified that Fidelity used guidelines for the voting of shares Fidelity owned in other companies. Tarallo observed that our circuit and others have rejected the argument that, in the context of the securities fraud statutes, willfulness requires a defendant know that he or she was breaking the law. The amendment adopted by the Conferees accomplishes this by providing that criminal penalties shall not be imposed for failing to comply with the FCPA's books and records or accounting control provisions.