The former chief executive officer of Brocade Communications Systems, along with other former senior executives, has been charged with financial fraud over the backdating of stock options.
The move could unleash a host of other actions against senior executives at top US network and IT suppliers.
Stock option backdating involves companies putting back the date for the award of stock options to employees and senior executives, usually to a time when the share price was lower, making the award potentially more lucrative.
The US Securities and Exchange Commission (SEC) is taking action against Gregory Reyes, Brocade's chief executive until 2005, Stephanie Jensen, its former vice-president of human resources, and Antonio Canova, the company's former chief financial officer.
The SEC said it had more than 80 similar active investigations into possible stock option backdating nationwide.
SEC chairman Christopher Cox said fraud relating to stock option grants “goes to the heart of the relationship between a corporation and its shareholders”.
Reyes denies any wrongdoing and it is not alleged that he received any personal gain from backdated options.
The FBI alleges that Reyes and other executives backdated stock options to attract and retain key employees, and that Reyes told Jensen to backdate a job offer letter by more than two months so that the potential employee could benefit from a more favourable share price in late 2001.
Struggling Brocade, which has recently been forced to restate its financial results, said none of those facing charges now worked for the company and that it had put aside settlement cash to deal with any charges brought against the company by the SEC.
News of the action against the former Brocade executives comes after last week’s announcement that dozens of Silicon Valley companies are under investigation by the US Attorney General’s office for alleged stock option backdating.
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