Brocade witness “recants”; Reyes seeks new trial

December 12, 2007, 2:25 AM UTC

On Friday, Brocade’s former CEO Greg Reyes asked for a new trial on the grounds that a prosecution witness at his trial — the only witness the government chose to call from Brocade’s (BRCD) finance department — has allegedly recanted portions of her testimony.

Reyes was convicted last August of ten federal felonies, including securities fraud, in connection with options backdating at the firm. His sentencing date has not yet been set.

Appended to Reyes’s motion are two affidavits from confidants of the witness, Elizabeth Moore, attesting to things Moore has allegedly told them since the trial, as well as a copy of an e-mail Moore sent to one of them. In the email sent October 24 to Reyes’s “house manager” Angela Restrepo-Steger, Moore wrote: “I’ve read the closing argument over and over and I’m angry with [prosecutor Timothy] Crudo twisting around what I said, and bullying me into saying things I didn’t intend to say. I’ve read those dreaded lines I said over and over and I can’t believe it carried as much weight as it did. . . . I want to find a way to fix this, my heart is heavy with guilt and I want to fix this now.” In a third affidavit, a friend of Moore’s who still works at Brocade, Barbara Keller, provides a hearsay account of similar remarks Moore allegedly made to a mutual friend.

I should add that Moore also contacted me in early October, in a comment to Fortune’s Legal Pad, and made similar, distraught statements, which I’ll set out in detail at the end of this post.

In an e-mail Crudo says he will respond to the motion in “due course,” but that he has no comment now. A spokesman for his office, the U.S. Attorney’s Office in San Francisco, also declined comment.

Moore did not testify at the recently completed trial of Reyes’s co-defendant, former human resources chief Stephanie Jensen. (Jensen was convicted of the two less serious offenses with which she was charged.) According to Reyes’s filings, Moore’s attorney, George Niespolo, had informed Crudo in November that if he called to testify at Jensen’s trial, Moore would invoke her Fifth Amendment privilege against self-incrimination.

On November 13 Crudo e-mailed Reyes’s and Jensen’s attorneys, advising them of Niespolo’s message, and stating that Niespolo declined to provide details of why Moore was taking this position “except to add that it was somehow related to her prior testimony.” (Crudo’s e-mail appears intended to carry out his constitutional duty to turn over possible so-called Brady material — i.e., evidence tending to exculpate a defendant.)

Reyes’s attorney, Richard Marmaro, wrote Crudo back on November 16, demanding that Crudo “investigate this issue further to prevent a miscarriage of justice. The truth-seeking function of the trial process ‘cannot be fulfilled when the state, knowing that a witness may have perjured herself, proceeds without conducting an investigation to ensure that a new trial is not warranted’ [case citation omitted].”

In the current motion, Marmaro — noting that he has never heard back from Crudo — seeks a court order forcing Crudo to grant Moore “use immunity” so that she can testify as to what she knows.

Though Reyes’s counsel Marmaro characterizes Moore’s testimony in his motion as having constituted the “heart” of the prosecution’s case, and says Crudo referred to it 25 times in his closing argument, it is not at all clear that Judge Charles Breyer will see it in the same light. The Moore testimony at issue concerns whether, and the degree to which, Brocade’s finance department knew about the options backdating procedures being used by Reyes and Jensen. But in an August 29 order denying an earlier motion for a new trial by Reyes, Breyer wrote: “Of course, notwithstanding the parties’ emphasis on this subject, what the finance and accounting departments did or did not know about the scheme is certainly not determinative of Reyes’ criminal liability.”

In any event, the potential importance of Moore’s “recantation” lies in the prosecution’s having argued at trial, among other things, that Reyes deceived Brocade’s finance department about the existence of options backdating at the company. Moore, who administered options plans, bolstered the government’s argument by testifying that she had not been aware that option grant dates were being selected retroactively. If Reyes kept the scheme secret from the finance people, the argument went, he probably understood that retroactively selecting option grant dates had accounting ramifications and was probably trying to evade those ramifications illegally.

If, on the other hand, everyone in the finance department knew that options grant dates were being selected retroactively and they were voicing no objections to such conduct, then it would be more plausible that Reyes might have mistakenly believed that such a procedure was lawful — i.e., carried no special accounting or disclosure requirements that were not being fulfilled.

According to one of the confidants who submitted an affidavit supporting Reyes’s current motion, Moore said her testimony on this subject at trial had been inaccurate.

“Ms. Moore told me that when the prosecution asked her about the dates on certain documents, she testified that she assumed that the date on the document was the date Mr. Reyes signed it,” writes James Hulbard, a Merrill Lynch official who became friends with Moore when he was at Deutsche Bank Alex Brown, which provided stock and financial services for Brocade employees. “Ms. Moore told me that this testimony was not accurate . . . [and] what she meant to say was that she did not care when Mr. Reyes actually signed the document.”

“Ms. Moore also told me that she was reviewing the trial transcripts of the prosecution’s closing argument and that she was shocked at the prosecution’s characterization of her testimony,” Hulbard continues. “She told me that the prosecution’s characterization of her testimony was making her sick.”

In a subsequent conversation, Hulbard continues, “Ms. Moore said that while Brocade employees did not refer to the practice as backdating, she and others in the finance department at Brocade knew that Brocade looked back and picked favorable prices for employee stock options. . . . Ms. Moore also told me she was angry that Bob Bossi, Brocade’s former controller, had not come forward because he could have set the record straight.”

Hulbard also says that when he asked Moore why she hadn’t testified truthfully at trial, she indicated that she was concerned about being fired from her job at Brocade, and about being blacklisted and having difficulty getting another job. . .. Ms. Moore also told me . . . that she felt pressured and bullied by the prosecution and the Securities and exchange Commission.”

On October 2, Elizabeth Moore wrote a public comment to a piece I’d published about the Brocade case for this blog. The comment included her complete name, telephone number, and e-mail. I called her to see if she really was who she claimed to be and, satisfied that she was, I published it. At 4:34 pm, however, she e-mailed me and said that she hadn’t realized that her phone number and e-mail would be posted, and asked me to remove her comment. I asked if she meant just her contact info or the whole letter, and she wrote back: “Actually, take down the whole letter for now, I want to rewrite it. I have some stuff to add.” As a courtesy, I did take down the comment, but she never sent another.

I copied and saved her comment at the time, however, and will now publish it below (except for her phone and e-mail):

I’m sending you a message regarding the Brocade/Greg Reyes backdating trial. I was one of the first witnesses called, Elizabeth Moore. I was with Brocade from April 2000 through July 2007. I only recently left and joined VMware. I submitted a letter to Judge Breyer looking for leniency for Greg Reyes. I truly believe there has been a serious miscarriage to justice in this case, principally as a result of the prosecution team led by Timothy Crudo. The actual person who developed the stock option program was Mike Byrd. He modeled Brocades stock option program the same as when he was CFO at Maxium [sic]. It’s not fair that Mike Byrd [Brocade’s CFO from 1999 to 2001, and president and COO from 2001-2003] was given immunity when he was the CFO of Brocade for the years in question. I worked with Mike Byrd and I know for a fact he was aware of everything. I have been struggling with this verdict and feel like I need to speak my peace. Below is the letter I submitted to Judge Breyer.

[Shortly after Reyes’s was convicted, the SEC brought a civil complaint against Michael Byrd, alleging that he “knew, or was reckless in not knowing,” that others at Brocade were backdating options. I have a call and e-mail into his attorney, John Potter, seeking comment on Moore’s accusations about Byrd. Potter has previously said that Byrd did not know that options backdating was taking place at Brocade. “A jury unanimously accepted the United States Attorney’s position that Mr. Byrd had no knowledge of these illicit activities,” Potter told Bloomberg News in late August.–RHP]

September 16, 2007

United States District Court
Honorable Charles R. Breyer
450 Golden Gate Avenue
Courtroom 8, 19th Floor
San Francisco, CA 94102

Re: Greg Reyes

Your Honor:

I worked at Brocade from April 2000 to July 2007 as the Stock Plan Administrator. I met Greg the first week at Brocade because he came by my desk to welcome me and introduce himself. I was very surprised a CEO would even do that but after he introduced himself I knew I was at the right company lead by the right person. I truly enjoyed my 7 years at Brocade, especially the years Greg was the leader.

I have been through almost every step that has lead up to Greg’s trial. I can’t begin to tell you how devastated I am by the verdict. Because I was so closely involved and worked with Greg for many years, I am struggling to make sense of the verdict and what he is possibly facing. Not a day has gone by that I don’t think about Greg and his family, and how his two beautiful children may have their father taken away from them. The Greg I know would have never intentionally done anything wrong.

The most impressive memory I have of Greg, was his reaction to our country’s 9/11 attack. Greg immediately called the company together and made sure all of Brocade’s employees and their families were OK and accounted for. Greg went out of his way to help everyone get home, and to ensure everyone’s family knew their loved one’s were OK. Greg also directed the sales teams to reach out to customers and partners in and around NYC to offer technical assistance, free of charge to help everyone in need. Greg then fully supported the ongoing charitable efforts related to 9/11, encouraging all of us to help as much as we could, and then matching all of the contributions.
I learned over the years of Greg’s commitment to his family through work functions and sporting events. Greg would bring his kids to Brocade from time to time, and it was easy to see how fond and proud he was of them both. His kids and wife are very close to Greg and I know his incarceration will cause them to suffer more than anyone else. I don’t believe Greg’s family nor our society would benefit from his incarceration. For these reasons I ask the court for leniency in Greg’s sentencing.

Elizabeth Moore

Here are Reyes’s key recently filed documents:

Reyes’ Motion for New Trial

Hulbard’s Declaration

Keller Declaration

Restrepo-Steger affidavit (including email)

Crudo-Marmaro correspondence