The charges mark the first formal criminal and civil securities fraud charges brought against any of the dozens of companies that have been implicated in a controversy over historical stock options granting practices. The controversy generally concerns the concept of backdating stock options, retroactively dating them at a time when a company's stock price is relatively low, increasing the potential for profit.

The complaints allege that Gregory Reyes, former president, chairman and CEO of Brocade, and Stephanie Jensen, former Brocade vice president of human resources, routinely backdated stock option grants to give employees favorably priced options without recording necessary compensation expenses. The charges are the result of 18-month investigations by the SEC and the FBI, according to U.S. attorney's office.

Gregory Reyes

Speaking at a news conference at the SEC district office here Thursday, SEC Chairman Christopher Cox, said the SEC alleges that Reyes and Jensen participated in an options backdating scheme for more than four years and that the scheme inflated Brocade's net income by as much as $1 billion in 2000 alone. Cox said the SEC's division of enforcement is currently investigating more than 80 companies nationwide for potential backdating impropriety.

"This issue is important because it goes to the heart of the relationship between companies and shareholders," Cox said.

Cox and Linda Chatman Thomsen, director of the SEC's enforcement division, showed data that indicated that all of Brocade's 2002 stock option grant dates coincided with quarterly or monthly stock price lows.

If convicted on the criminal charge, Reyes and Jensen could get five to 20 years in prison and face a fine of $5 million each, according to U.S. Attorney Kevin Ryan. The two are expected to appear in federal court here Aug. 2, he said.

Officials declined to comment further on other companies being investigated. Ryan would not say how many companies are currently being looked at by the U.S. attorney's office, other than to say the backdating task force has "several" investigations ongoing. A number of companies have acknowledged receiving subpoenas from Ryan's office in SEC filings.

The complaints allege that Reyes and Jensen regularly caused Brocade to grant stock options below market price to employees between 2000 and 2004, but backdated documents to make it appear that the options were granted on prior dates, concealing millions of dollars in expenses from investors.

The separate criminal and civil complaints allege that Reyes repeatedly used hindsight to select a date with a lower stock price from the recent past as the supposed option grant date. To facilitate the scheme, Jensen allegedly created or directed others to create paperwork that made it appear that the options had been granted on the earlier date, according to the criminal complaint.

Officials implied that they anticipated bringing charges against other companies. But Thomsen added of the 80 plus ongoing investigations, the SEC is "not certain in any one of them" (other than Brocade) that the evidence involved will merit charges being filed.