(03-19) 10:45 PDT SAN FRANCISCO -- A former executive of Brocade Communications Systems was sentenced to four months in federal prison and fined $1.25 million Wednesday for conspiring to backdate employees' stock options and conceal the effects on the company's finances.

Stephanie Jensen, 50, of Los Altos, former human resources director of the San Jose company, was the second Brocade executive to be convicted in the nation's first criminal trials for stock option backdating. The company's former chief executive, Gregory Reyes, was sentenced to 21 months in prison in January for 10 felony convictions.

Both sentences were imposed in San Francisco by U.S. District Judge Charles Breyer, who allowed Jensen and Reyes to remain free while they appeal their convictions. Jensen's sentence also includes three months in a halfway house after her release from prison.

Jensen was convicted in December of one count of conspiracy and one count of falsifying company books and records for plotting with Reyes for several years to keep their compensation practices off Brocade's ledgers.

The prosecutions are the result of an investigation by the San Francisco U.S. attorney's office and the Securities and Exchange Commission into alleged abuses of backdating, a common method of increasing the value of employee stock options.

Options allow an employee to buy stock at a specified price. The price is usually set on the date that the option was granted but can also be backdated to a time when the stock was selling for less, yielding an immediate paper profit.

The practice is legal as long as it is reported accurately. But it is illegal to conceal backdating from federal regulators and investors, preventing them from assessing a company's actual expenses and financial status.

The federal investigation has led to the firings or resignations of dozens of executives and to corporate disclosures of billions of dollars in previously unreported expenses.

Brocade, which makes data storage networking products, agreed in May to pay $7 million to settle a backdating suit by the SEC. The company issued financial restatements in January 2005 that increased its reported net loss for fiscal 2003 and 2004 by $41 million and reduced its income for 1999 through 2002 by $238 million.

Jensen became Brocade's vice president for human resources in October 1999 after 20 years in personnel jobs at high-tech companies, starting with an entry-level position at Apple Computer. She left Brocade in February 2004.

Prosecutors said Jensen conspired with Reyes from 2000 onward to conceal the effect of backdating on Brocade's finances while offering backdated options to attract talent in the competitive Silicon Valley market. They said Jensen, who was responsible for the company's personnel records, prepared documents for Reyes' approval listing fictitious board meetings and employee hiring dates at which the options were allegedly approved.

Defense lawyer Jan Little said Jensen had merely provided information to Reyes, that the CEO had complete authority over employee compensation and that he had chosen the most lucrative dates for the options.

Jensen's "principal wrong ... was not one of design, but rather of inaction, in not questioning more forcefully the direction she received from her superiors," Little said in written arguments to Breyer.

She argued against a prison term for Jensen and asked for either probation or a period of home confinement. Prosecutors sought a six-month prison sentence.

Assistant U.S. Attorney Timothy Crudo, one of Jensen's prosecutors, said Breyer's sentence Wednesday recognized the seriousness of the crime.

"The integrity of the capital markets in this country is fundamentally grounded on the honesty of executives of public companies, and when they falsify a company's books and records and auditors, regulators and shareholders are misled as a result, there are real consequences to real victims," Crudo said in a statement.

Little declined to comment after the hearing.

E-mail Bob Egelko at begelko@sfchronicle.com.

This article appeared on page C - 1 of the San Francisco Chronicle

Gas and electricity price could rise by 10% this year with average bills reaching £1,150

Comments

Energy price hike: Scottish & Southern

Gas and electricity bills could rise by a further 10 per cent this year if wholesale energy prices continue to increase, it was predicted today.

Price comparison website uSwitch.com said another hike of up to 10% would increase a typical consumer's dual fuel energy bill by a further £105 to £1,153 a year.

The prediction came as Scottish and Southern Energy became the last of the UK's six main suppliers to increase fuel bills, raising its tariffs by an average of 14.2 per cent for electricity and 15.8 per cent for gas from April 1.

USwitch.com warned that the price of gas on the forward market for next winter is 22 per cent higher than it is at present, making the cost of procuring energy more expensive for suppliers.

It said this cost was unlikely to be absorbed by energy companies, suggesting consumers' bills still have further to rise.

Tim Wolfenden, head of home services at uSwitch.com, said: "Consumers cannot afford to breathe a sigh of relief yet - the way the market is looking at the moment, we can expect a second round of energy price hikes which could add up to 10 per cent, or £105, to household bills.

"Increases in the cost of gas on the forward market will make further price rises inevitable before the end of the year - the industry has margins to protect and shareholders to satisfy.

"It will not meet all the cost out of its own pockets and is likely to ask customers to help cover the burden."

ADVERTISEMENT

Iconocast is about learning and teaching without borders; we offer eMarketing, Internet Advertising, Internet Marketing, Search Engine Optimization, Search Engine Marketing, Online Branding, and eMarketing News Services.

Iconocast Home Page

Contact Iconocast

Iconocast Health Articles

© 2003-07. ICONOCAST is a trademark of iconocast.com.