Jan. 16 (Bloomberg) -- Former Brocade Communications Systems Inc. Chief Executive Officer Gregory Reyes, the first CEO convicted by a jury for stock options manipulation, was sentenced to 21 months in prison and ordered to pay a $15 million fine.

The sentence today by U.S. District Judge Charles Breyer in San Francisco was less than the 24-to-30 month term he said was the maximum allowed and the 33-month term prosecutors sought. Breyer said Reyes deserved more than sentences given executives who pleaded guilty to backdating and less than the maximum because he was a ``good and decent'' man who gave to charities.

The case was about ``the failure of a CEO of a publicly traded company to honestly disclose financial information,'' Breyer said. ``It is about lying to his company.''

Reyes, 45, was convicted in August of conspiracy and fraud for backdating hundreds of employee option grants in 2001 and 2002. He hid the practice from auditors and investors and inflated the company's reported revenue, prosecutors claimed. Reyes wept today as he read an apology to the court.

He may remain free while he appeals his conviction to the U.S. Court of Appeals in San Francisco, Breyer said. Prosecutors had sought a $41.2 million fine and $90 million in restitution to repay Brocade for Reyes's legal bills and company investigations. Brocade paid $7 million last year to settle a lawsuit by the Securities and Exchange Commission.

200 Companies

At least 200 companies have disclosed internal or federal investigations into stock-options backdating and about 100 announced they must restate previously reported financial results to account for the practice, according to Bloomberg data. At least seven executives have been criminally charged.

``There was no confusion, there was no misplaced reliance on accountants and lawyers'' or reliance on the good faith of others, Assistant U.S. Attorney Tim Crudo said in seeking a harsher sentence for Reyes. ``Reyes is not an outlier because he's innocent, he's an outlier because he's guilty.''

Brocade, the largest maker of switches for data-storage networks, restated results in January 2005, widening its 2004 loss to $32 million from $2 million because of misreported stock- based compensation. The San Jose, California-based company restated results again in November 2005, adding about $71 million in expenses that it didn't properly record for options to executives.

``I'm sorry,'' Reyes said. ``There is much that I regret. If I could turn back the clock, I would.''

Nine Months

Reyes's lawyers asked for a sentence of no more than nine months in a halfway house followed by four months of home confinement with no restitution, according to court filings.

They said a stiffer punishment was unwarranted because Reyes hadn't personally profited from backdated stock options, investors didn't suffer losses, his reputation and family have already been damaged by his legal battles and other executives who may have backdated haven't been charged.

``Many will never be prosecuted,'' said Richard Marmaro, Reyes's lawyer, at the hearing. ``It just doesn't seem right.''

Three former Take-Two Interactive Software Inc. executives have pleaded guilty in backdating probes and received probation. A former Comverse Technology Inc. attorney also pleaded guilty and received a one year sentence. Comverse's ex-CEO Jacob ``Kobi'' Alexander is free on bail while the U.S. seeks his return from Namibia to face 35 criminal counts.

Minimum Sentence

Breyer agreed with the defense that prosecutors hadn't proven how much investors had lost. Yet he said Reyes deserved more than the minimum sentence because he obstructed justice when he said in a declaration that he didn't backdate options.

Breyer used that declaration in deciding that ex-Brocade human resources chief Stephanie Jensen, Reyes's codefendant, should be tried separately from Reyes.

In sentencing Reyes to less than the maximum, the judge said he was struck by praise given Reyes in 400 letters submitted by his supporters.

``Before this incident occurred, he acted in a way with respect to others, to help the less advantaged,'' Breyer said.

Jensen was convicted by a jury in November of conspiring with Reyes to falsify records to cover up the backdating. She is scheduled to be sentenced April 30.

Stock options allow holders to buy shares later, usually at the trading price on the day the options were granted. Through backdating, companies retroactively change grant dates to those with lower stock prices, giving recipients built-in profits.

Unless disclosed and recorded as expenses, the practice is illegal because it hides costs from shareholders and regulators.

Reyes still faces an SEC lawsuit and is named as a defendant in shareholder lawsuits.

The case is U.S. v. Gregory Reyes, 06-556, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in San Francisco federal court at kgullo@bloomberg.net.

Last Updated: January 16, 2008 17:59 EST