Former Brocade Personnel Chief Sentenced

SAN FRANCISCO (AP) -- The former human resources chief of Brocade Communications Systems Inc. was sentenced on Wednesday to 4 months in prison and ordered to pay a $1.25 million fine for her role in a stock options backdating scheme.

Stephanie Jensen was convicted in December of conspiracy and falsifying corporate records at the networking equipment maker.

She faced as many as 12 months in prison.

"I am so sad today," Jensen told U.S. District Court Judge Charles Breyer in a wavering voice and choking back tears before he handed down the sentence. "I would do anything to be able to go back in time and make different choices and spare others from the impact of all this. I stand before you today with sadness and humility and regret. I accept responsibility for my actions."

Jensen and her former boss, former Brocade chief executive Gregory Reyes, were the first two executives to go on trial over backdating when their cases went before separate juries in U.S. District Court for the Northern District of California last year.

Their trials were seen as important signals about how severely the courts would punish backdating, a new type of securities fraud that prosecutors contend paints an inaccurate picture of a company's financial health by hiding certain compensation expenses.

The punishments in both cases indicate the offenses are viewed as serious crimes deserving of prison time and steep fines - though not as harmful to shareholders as other types of securities fraud such as insider trading, which regularly triggers steeper sentences.

Breyer said he believed Jensen's remorse was genuine, but he had to impose a sentence that would deter other executives from aiding in backdating schemes that undermine investors' confidence in the financial records of publicly traded companies.

The judge said CEOs like Reyes can't execute backdating schemes on their own; they always need subordinates to push through falsified paperwork.

"They need help - and that person needs to say no," Breyer said, adding that, with a net worth over $10 million, Jensen would not face undue hardship in paying the fine.

Jensen dabbed tears from her eyes after the hearing and embraced friends and family members in the packed courtroom.

Her defense lawyer, Jan Little, declined to comment, as did prosecutors from the U.S. Attorney's Office.

Options give employees the right to buy shares of stock at a predetermined time. They're a powerful incentive to lure and keep talented workers, particularly when granted by newly public companies with the opportunity for rapid growth.

Backdating refers to pegging options awards to dates in the past when the company's stock price was low. It isn't illegal, but companies must take charges connected to the practice - something that Brocade didn't do.

Reyes and Jensen were accused of manipulating the options awards to prized Brocade workers from 2000 to 2004 to boost the payout for those workers and hide from investors how much the awards truly cost Brocade, making it appear Brocade was more profitable than it actually was.

Both defendants said they didn't know the company failed to properly account for the awards and blamed Brocade's finance department. The scandal had little effect on Brocade's stock price, as many analysts said they stripped compensation expenses out of their calculations about whether to recommend the stock.

Reyes was convicted in August on all 10 counts of securities fraud he faced. He was sentenced to 21 months in prison and fined $15 million but remains free until an appeals court rules on the case.

The backdating scandal erupted around the country in 2006 on revelations that companies were manipulating options awards to employees and not taking the appropriate charges for the practice as required by the Securities and Exchange Commission requires.

A total of 17 executives have been hit with criminal charges for the practice. Nine have pleaded guilty.

The charged executives come from a range of companies, including chip maker Broadcom Corp., voicemail software maker Comverse Technology Inc., security vendor McAfee Inc., job-listings company and Monster Worldwide Inc. and video game publisher Take-Two Interactive Software Inc.

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