White Collar And Other Prosecutions In Northern California After Reyes (Part I).

Gregory Reyes' Federal Convictions For Improperly Reporting Backdated Stock Option Grants In 1999-2003 -- The No-Loss Case in Context.

a. When A No-Loss Prosecution Is Brought, Who Wins?

Fraud, conspiracy and false reporting convictions of the former CEO of Brocade Communication Systems, Inc, means that the San Francisco office, struggling for recovery from its troubled previous leadership, has chalked up a major win for itself. Expect an emboldened approach, driven by a policy choice that victimless record-keeping violations are not merely grounds for an S.E.C. proceeding, but grist for criminal prosecutions that threaten multi-year custody terms. Just how emboldened prosecutors will be is better assessed after Reyes' sentencing, scheduled for November 21, 2007.

The Justice Department and U.S. Attorney also "win" because they won’t have to explain why, when white collar and other prosecutions with real victims are down in San Francisco, San Jose and Oakland, scarce federal resources went to investigating and trying a case with no easily explainable loss. Count that as a loss for victims of real crime who are still waiting for justice as statutes of limitation creep closer. Also count it as a loss for the criminal trial jury instruction that provides "the government always wins when justice is done."

In the Northern District of California, with as many as 50 Silicon Valley companies under investigation, it should not have been too challenging to find a backdating case with substantial losses, real victims, and genuine criminality (think Kobi Alexander's greed and Comverse Technology). Yet prosecutors led off with charging and trying Reyes, knowing the evidence would not show Reyes enriched himself, nor that Brocade’s shareholders lost money. Plainly, Reyes made some singularly unhelpful statements (“it’s not illegal if you don’t get caught”). However unappealing those words, when deeds cause no explainable loss, fairness and justice in allocating scarce prosecutorial resources should trump any need to pursue felony charges, let alone seek a multi-year custody sentence.

b. And Who Loses?

For crime victims with real losses (financial or otherwise) in the Northern District of California, the bad news is Reyes’ conviction continues to leave unaddressed the need to provide justice and closure for them. Through March 2007 (most recent data available), long-term overall numbers from the Transactional Records Access Clearinghouse at Syracuse University show:

  • District court (felony) filings down 18.4% from a year ago, and
  • District court (felony) filings down 31.9% from five years ago.

Considering the numbers instead of percentages paints an equally grim picture:

  • For the FY ending September 30, 2005, district court filings named just 808 defendants (across 543 cases), compared to 975 defendants in 2005; 885 defendants in 2004, 982 defendants in 2003 more than 1000 in 2002, 2001, 2000, and 1999. (see U.S. Attorney’s Annual Statistical Report For FY 2005, at p. 66; and TRAC reports).

Next: The Government’s performance statistics.