The other shoe finally dropped Thursday (July 20) when the U.S. Securities and Exchange Commission (SEC) and Justice Department announced the first formal criminal and civil securities fraud charges against individuals in connection with the growing scandal over historical stock options granting practices at dozens of technology companies.

SEC Chairman Christopher Cox said the agency is currently investigating more than 80 companies for possible violations of U.S. securities laws on stock options granting. Cox and other officials at a news conference here implied that the charges filed against three Brocade Communications Systems Inc. executives, including former CEO Gregory Reyes, may be the tip of the iceberg.

"We expect these investigations to result in more legal actions over the coming months," Cox said.

Other companies and individuals could face prosecution for historical stock options granting practices, but the probe could take months if not years. While the SEC and DoJ continue to aggressively investigate companies that have been implicated, charges against former Brocade executives were the result of an 18-month U.S. probe. Many of the companies now being investigated have only been implicated in the past few months.

The investigation may also be hampered by statues of limitation on criminal behavior. The allegations against Brocade executives were said to have occurred between 2000 and 2004. Backdating at many companies such as Altera Corp. is said to have occurred as far back as the late 1990s. Hence, they may no longer be subject to criminal penalty.

U.S. Attorney Kevin Ryan acknowledged that statutes of limitation might be a factor in some investigations. "We are looking at statute of limitations and some of the issues around that," Ryan said.

Cox and others repeatedly stressed that the options scandal, like the Enron scandal, will erode public confidence in corporate governance. Cox said the illegal backdating of stock options "poisons the marketplace" by giving investors an inaccurate representation of a company's standing.

In separate actions, the U.S. attorney's office here and the SEC both filed fraud charges Thursday in federal court here against Reyes and Stephanie Jensen, former Brocade vice president of human resources. The criminal count against Reyes and Jensen carries a maximum penalty of 20 years in prison and a $5 million fine. The SEC's civil complaint also names Antonio Canova, former Brocade chief financial officer, charging that he knowingly signed false and misleading financial statements and SEC filings.

Cox said legal strictures prevent the coordination of the criminal and civil cases, but that the SEC and DoJ continue to cooperate on investigations.

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

"This case will not be the last [in which charges are brought]," added Arthur Balizan, acting special agent in charge for the FBI. "Teams of attorneys are actively pursing dozens of investigations around the country."