Reyes

ORDER RE: DEFENDANT’S MOTION FOR SUMMARY JUDGMENT ON THE ISSUE OF MATERIALITY

The SEC filed this enforcement action against three former executives of Brocade Communications Systems, Inc. (“Brocade”) for their alleged participation in a scheme to backdate stock options. Now pending before the Court is a motion for partial summary judgment filed by Defendant Gregory Reyes (“Reyes”), Brocade’s former CEO. The issue presented is one of first impression for the federal courts: Does stock options backdating matter to investors? Put another way, the Court must consider whether the information concealed by the alleged backdating scheme at Brocade “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Basic, Inc. v. Levinson, 485 U.S. 224, 281-32 , 108 S.Ct. 978 , 99 L.Ed.2d 194 (1988) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 , 96 S.Ct. 2126 , 48 L.Ed.2d 757 (1976)). Reyes argues that no reasonable juror could reach such a conclusion. This Court disagrees.

BACKGROUND

A stock option confers a right to buy stock at a fixed price, called the “strike price.” When the strike price is lower than…