Reyes faces 21 months for backdating

A US federal judge has recommended a jail sentence of up to 21 months for Gregory Reyes, the first chief executive to be convicted of fraud over stock options backdating.

Mr Reyes, the former chief executive of Brocade, a networking equipment company, is awaiting sentencing after he was found guilty in August of improperly manipulating the grant dates of stock options.

The sentencing recommendation, contained in an opinion that was unsealed on Friday, came a day after William McGuire, the former chief executive of UnitedHealth, the biggest US healthcare group, agreed to pay back more than $600m as part of a settlement in a backdating case.

Mr Reyes, who has said he will appeal against his conviction, was the first top executive of a public company to be hit with criminal charges over backdating, in which the value of a stock options grant is artificially inflated by changing the grant date to coincide with a low point in the value of a company’s shares.

While not in itself illegal, the practice can fall foul of securities laws if not properly disclosed to shareholders. Top executives at more than 200 companies have come under scrutiny for alleged improper backdating.

Subsequent probes have led scores of companies to restate financial results – some to the tune of hundreds of millions of dollars – and dozens of executives have been forced to resign.

Judge Charles Breyer, the federal judge who presided over the case, recommended a jail term of 15-21 months for Mr Reyes – far short of the maximum 10-year sentence calculated by federal prosecutors. In his written opinion, Judge Breyer said his recommendation had been guided by the difficulty in quantifying the loss to shareholders arising from improper backdating. He has delayed his sentencing decision indefinitely.