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U.S. Securities and Exchange Commission


Litigation Release No. 20247 / August 17, 2007

Securities and Exchange Commission v. Michael J. Byrd, Case No. C 07-4223 WHA (N.D. Cal. Aug. 17, 2007)

SEC Charges Additional Brocade Executive For Role In Stock Option Backdating Scheme

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.

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 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 complaint charges Byrd with violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 16(a) of the Securities Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, 13b2-2, and 16a-3 thereunder, and seeks relief including disgorgement of ill-gotten gains and civil monetary penalties.

For additional information, see Litigation Release No. 19768 (July 20, 2006); Litigation Release No. 20137 (May 31, 2007).

SEC Complaint in this matter



Modified: 08/17/2007