Thursday, March 18, 2010

Witch Hunts by Federal Prosecutors

The Rove Republican Racket received some visible black-eyes in their stock-option backdating cases.

At the end of last year, a U.S. District judge tossed out a high-profile corporate backdating case because federal prosecutors were accused of prosecutorial misconduct which including leaking grand jury testimony and intimidating plaintiffs.

In another backdating case, Greg Reyes, former CEO of Silicon Valley's Brocade, was targeted and convicted by members of the Rove Republican Racket in 2007 for stock-option backdating. Reyes  appealed the ten count verdict due to prosecutorial misconduct. This past summer, the appeals court threw out the convictions due to deliberate prosecutorial misconduct.

Greg Reyes is back in court this week and Therese Poletti of MarketWatch has opined brilliantly:
U.S. attorney Adam Reeves, one of the prosecutors trying to put Reyes in federal prison for stock options backdating, allowed what seemed like a major gaffe, when one of his witnesses agreed that there was no "look-back pricing" (one of the more horrendous legal euphemisms for backdating) at another Silicon Valley company where he worked....Are the prosecutors over-aggressive or just having a hard time keeping their facts straight dealing with arcane accounting issues? Prosecutorial misconduct played a role in the first criminal trial against Reyes, which wound up being overturned by an appellate court.

Some executives in Silicon Valley decried these cases as witch hunts by prosecutors looking for political gain. The relentless focus on a few executives like Reyes in criminal actions, while others were charged only by the SEC with no threat of prison, has seemed unjust. During the Reyes trial, prosecutors did not produce witnesses or shareholders to testify to any kind of Enron-like harm.

Still, mistakes and minor slip-ups by seemingly over-zealous prosecutors may add more fuel to the debate over whether these cases should ever have been tried as criminal.
 Again, we stress the fact although backdating may be wrong, unethical, or even an accounting error, some prosecutors have stretched the law to make it criminal.