U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

SEC Charges Additional Brocade Executive for Role in Stock Option Backdating Scheme


Washington, D.C., Aug. 17, 2007 - The Securities and Exchange Commission today filed fraud charges against Michael J. Byrd, a former Chief Financial Officer and Chief Operating Officer of Brocade Communications Systems, Inc., alleging that he disregarded indications that other senior corporate executives were improperly backdating stock option grants at the company. The Commission alleges that Byrd, of Saratoga, Calif., learned of instances in which Brocade's then-CEO and others were backdating options for certain individuals, yet failed to ensure that the company properly accounted for the option expenses and disclosed them to investors.

Linda Chatman Thomsen, the SEC's Director of Enforcement, stated, "This case confirms the Commission's commitment to pursuing not just those who perpetrate financial fraud, but the corporate gatekeepers who allow it to happen on their watch."

Marc Fagel, Associate Regional Director of the Commission's San Francisco Regional Office, added, "Mr. Byrd was in a position to identify accounting irregularities and provide Brocade's shareholders with honest, accurate information. Instead, we believe he turned a blind eye to misconduct by senior executives and signed off on fraudulent financial statements."

The Commission's complaint, filed today in federal district court in San Francisco, Calif., alleges that Brocade's CEO repeatedly granted valuable "in-the-money" options to employees and executives, but signed backdated grant paperwork to avoid reporting significant expenses associated with the grants. According to the Commission, Byrd received information suggesting certain executive grants were being backdated, but failed to take appropriate action to determine the scope of the misconduct or to ensure that the options were properly accounted for by the company. The complaint cites instances in which Brocade purported to grant options to executives on dates before they had even been hired by the company; according to the Commission, Byrd was personally involved in interviewing some of these executives and thus on notice that option paperwork was being falsified so that the employees could receive favorably priced options.

The Commission's complaint further alleges that Byrd himself received a backdated option grant after becoming the company's Chief Operating Officer in 2001, and filed a disclosure statement with the Commission falsely stating that the options had been granted on an earlier date.

The Commission's complaint alleges violations of the antifraud, books and records, internal controls, and other provisions of the federal securities laws, and seeks relief including disgorgement of ill-gotten gains and civil monetary penalties.

# # #

For more information, contact:

Marc J. Fagel
Associate Regional Director
SEC's San Francisco Regional Office
(415) 705-2450

  Additional materials: Litigation Release No. 20247



Modified: 08/17/2007