Case3:06-cr-00556-CRB Document1007 Filed02/09/10 Page1 of 7

1 DAVID L. ANDERSON (CSBN 149604)

Acting United States Attorney
2
BRIAN J. STRETCH (CSBN 163973)
3 Chief, Criminal Division
4 ADAM A. REEVES (NYSB 2363877)
Assistant United States Attorney
5
450 Golden Gate Avenue, Box 36055
6 San Francisco, California 94102
Telephone: (415) 436-7157
7 Facsimile: (415) 436-7234
Adam.Reeves@usdoj.gov
8
Attorneys for Plaintiff
9 UNITED STATES OF AMERICA
10 UNITED STATES DISTRICT COURT
11 NORTHERN DISTRICT OF CALIFORNIA
12 SAN FRANCISCO DIVISION
13 UNITED STATES OF AMERICA, ) No. CR 06-0556 (CRB)
)
14 Plaintiff, ) UNITED STATES’ OPPOSITION TO
) THE DEFENDANT’S MOTION IN
15 ) LIMINE #5 TO EXCLUDE HIS
v. ) AUGUST 2006 DENIALS OF
16 ) BACKDATING AND JANUARY 2005
) STATEMENT
17 GREGORY L. REYES, )
) Date: February 16, 2010
18 Defendant. ) Time: 9:00 a.m.
) Place: Courtroom #8
19 )
20 INTRODUCTION
21 The United States seeks to introduce two brief categories of evidence that go to the heart
22 of the elements of the crime with which the defendant is charged. In the first category are three
23 August 2006 statements that go directly to the defendant’s state of mind and are evidence of
24 consciousness of guilt, in which the defendant denied ever having backdated options. In the
25 second category are brief statements that the defendant made during a January 24, 2005
26 conference call with investors that would rebut any defense that the defendant’s backdating was
27 not material.
28

U.S. Opp. to Deft.’s Backdating Denials Motion

U.S. v. Reyes, CR 06-0556 (CRB)
1
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1 Although the defendant raises a number of objections to the admission of these

2 statements, the gravamen of his opposition is that they would be unduly prejudicial. In this
3 regard, the defense appears to equate evidence of guilt with prejudice, but that is of course not the
4 standard. And while the defendant’s motion contains a lengthy list of statements, in actuality the
5 United States only seeks to introduce a small subset of these. As explained below, the statements
6 at issue are highly relevant and probative, the introduction of which would not result in undue
7 delay or prejudice.
8 ARGUMENT
9 1. THE COURT SHOULD ADMIT REYES ’ REPEATED AUGUST 2006 DENIALS OF
BACKDATING OPTIONS BECAUSE THEY SPEAK DIRECTLY TO HIS STATE OF MIND .
10
11 On three different occasions in August 2006 the defendant specifically denied backdating
12 options. First, the defendant stated in an August 14, 2006 filing in the SEC action before this
13 Court that he: “[s]pecifically denies that he knowingly engaged in a scheme to grant ‘in-the-
14 money’ options by falsifying company records” and “[s]pecifically denies that he ever used any
15 stock price history charts retroactively to select the lowest (or nearly the lowest) stock price as
16 the exercise price for any option grants.” Deft’s Motion in Limine # 5 (“Deft’s Motion”) Ex. G
17 ¶¶ 2, 23. Second, on August 2, 2006, the defendant unequivocally stated through his lawyer
18 Richard Marmaro that he “did not backdate options.” Id. at Ex. B. Third, on August 31, 2006,
19 he again stated through Mr. Marmaro that he: “did not backdate options . . . . After our
20 appearance in court yesterday, to plead not guilty to all charges, some media outlets reported that
21 Mr. Reyes and I in the past acknowledged that he participated in backdating. That is incorrect.
22 We never said or implied that, because it did not happen.” Id. at Ex. C (emphasis added).
23 The United States must prove not only that the defendant committed fraud, it must prove
24 that he willfully did so. His August 2006 unequivocal denials are relevant because they each go
25 directly to the element of intent and state of mind in that they demonstrate consciousness of
26 guilt.1 See United States v. Perkins, 937 F.2d 1397, 1402 (9th Cir. 1991) (“[F]alse statements
27
1
One of the government’s witnesses, attorney Craig Martin, is expected to testify that Reyes also
28
denied backdating to him during two interviews. Reyes’ August 2006 denials would thus also be
U.S. Opp. to Deft.’s Backdating Denials Motion
U.S. v. Reyes, CR 06-0556 (CRB)
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1 may be considered as circumstantial evidence of consciousness of guilt, and . . . it is up to the

2 jury to determine the significance of the evidence.”); Order Denying Motion for a Judgment of
3 Acquittal at 8 (filed Aug. 7, 2007) (Document #554) (citing Perkins and finding “Reyes’ denial
4 that he was aware of any retroactive pricing is evidence that he knew his conduct was
5 wrongful”). Where, as here, Reyes denied doing something that he did (and that his defense is
6 expected to concede he did), his earlier denials demonstrate that he knew that what he was doing
7 was wrong.
8 The defendant suggests that the relevance of the August 2, 2006 and August 31, 2006
9 statements is “questionable” because they were made by his attorney, Mr. Marmaro. See Deft’s
10 Motion at 3. This ignores that Mr. Marmaro’s statements on Reyes’ behalf are admissible as
11 statements of a party opponent’s agent under Fed. R. Evid. 801(d)(2)(D),2 which provides that a
12 statement is not hearsay if offered against a party as “a statement by the party’s agent or servant
13 concerning a matter within the scope of the agency or employment, made during the existence of
14 the relationship.” See also Sea-Land Service, Inc. v. Lozen International, LLC, 285 F.3d 808,
15 821 (9th Cir. 2002). Courts have held that like any other type of agent, an attorney’s statements
16 qualify for treatment under 801(d)(2)(D) if the statement relates to a matter within the scope of
17 the attorney’s employment. See Bay Area Material Handling, Inc. v. United States Trustee, 76
18 F.3d 384, at *3 (9th Cir. 1996) (unpublished opinion); United States v. Gregory, 871 F.2d 1239,
19 1242-43 (4th Cir. 1985). As Judge Illston noted in United States v. Bonds, although merely
20
relevant to the extent the defense puts this issue directly in play in its cross-examination of Mr.
21
Martin by suggesting that Mr. Martin did not understand what Reyes said during those two
22 interviews. If the defense does not challenge Mr. Martin’s recollection of the defendant’s denials
23 of backdating, the defendant’s August 2006 statements would be relevant only to establish the
defendant’s state of mind and consciousness of guilt. It is telling that the defendant does not seek
24 to exclude Mr. Martin’s statements; the August 2006 statements are admissible for precisely the
25 same reason as Mr. Martin’s are.
26 2
Mr. Marmaro’s statements are also admissible under Fed. R. Evid. 801(d)(2)(C) as statements
27 made “by a person authorized by a party to make a statement concerning the subject.” See Fed.
R. Evid. 801(d)(2)(C); see also Bay Area Material Handling Inc. v. United States Trustee, 76
28
F.3d 384, at *3 (9th Cir. 1996) (unpublished opinion).
U.S. Opp. to Deft.’s Backdating Denials Motion
U.S. v. Reyes, CR 06-0556 (CRB)
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1 hiring someone to do some task does not necessarily impart authority to speak, “speaking
2 authority may exist because of the nature of the relationship and the task the speaker is to
3 perform, as in the case of attorneys . . . .” 2009 WL 416445 (N.D.Cal. 2009) at 4 (emphasis
4 added). See also id. at 5 (“trainers, unlike lawyers . . . are not generally authorized to speak for
5 principals.”) (emphasis added).
6 As in Bay Area and Gregory, Mr. Marmaro’s August 2, 2006 and August 31, 2006
7 statements on Reyes’ behalf are classic examples of 801(d)(2)(D) statements by a representative.
8 It is telling that the defendant does not object that Mr. Marmaro’s statements are hearsay.
9 Nowhere in the defendant’s opposition does he suggest that Mr. Marmaro’s statements on his
10 behalf were outside the scope, or not made during the existence, of their relationship. Nor can
11 he. Independent evidence indicates that Mr. Marmaro had the authority to speak for Reyes on
12 this score. Cf. Pau v. Yosemite Park and Curry Co., 39 F.3d 1187, at *2 (9th Cir. 1994)
13 (unpublished opinion). These statements are about the defendant’s backdating of options, a
14 matter clearly within the scope of Mr. Marmaro’s retention, and Reyes ratified the statements
15 made in all three August denials. One need look no further than defendant’s privilege log
16 produced in the SEC’s litigation. In the days leading up to and on the press release dates, that log
17 identifies over 100 communications involving Reyes, Mr. Marmaro and personnel at the public
18 relations firm (Mike Sitrick and Seth Faison) that issued the release. See, e.g., Deft’s SEC
19 Privilege Log at 97 (identifying communication between Reyes and the public relations firm on
20 August 1, 2006 involving “Draft press release regarding DOJ case.”) (excerpts of which are
21 attached to the Accompanying Declaration of David L. Anderson as Exhibit A). Not only did
22 Reyes not manifest any disagreement with Mr. Marmaro’s August 2, 2006 statement on his
23 behalf, he let Mr. Marmaro make similar statements again and again: two weeks later in his SEC
24 filing and weeks after that in another press release.
25 The defendant next attacks the fact that (1) the August 2, 2006 and August 31, 2006
26 statements were made outside of court, before trial, and to the media, and suggests that (2)
27 admitting them would invite the jury to convict the defendant for the uncharged crime of perjury
28 and represent a waste of time. See Deft’s Motion at 4-7. The fact that the statements contained

U.S. Opp. to Deft.’s Backdating Denials Motion

U.S. v. Reyes, CR 06-0556 (CRB)
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1 in the press releases were not made in court or under oath is irrelevant: By that logic, a bank
2 robber’s confession to a robbery should not be admitted because it was out of court and before
3 trial. Further, that the statements were made to the media counsels in favor of their admission,
4 not against. Reyes did not just deny backdating to one person – he denied it to the world and the
5 fora he chose to do so underscores this.3
6 Nor is there any appreciable danger that admission of the defendant’s denials would
7 invite the jury to convict him of perjury: As the defendant himself notes, these denials were not
8 made in court or under oath, key components of what a reasonable juror would understand are
9 required for perjury. The risk is not that the jury would believe it is a crime to falsely deny
10 something to the media; the real risk to the defendant is that the jury would view those denials as
11 evidence that he was willfully committing another (charged) crime.4
12 Citing an Arizona case that involved a pro se litigant’s filings, Wolde-Giorgis v.
13 Christiansen, 438 F. Supp. 2d 1076 (D. Ariz. 2006), the defendant objects that admission of the
14 defendant’s August 2006 SEC Answer would confuse the jury and waste time. The United
15 States only intends to rely on a handful of paragraphs of that Answer in which the defendant
16 specifically and clearly denies having backdated options. Such an unequivocal denial to a
17 straightforward question would not confuse the jury, and even the defendant appears to
18 acknowledge the probative value of the denials contained in the SEC Answer. See Deft’s Motion
19 at 7. Finally, the defendant’s “waste of time” argument, see id., ignores the fact that the three
20 August 2006 statements, taken together, comprise less than a page of text. They are isolated and
21 straightforward, and the government anticipates that the introduction of these statements would
22 require no more than an hour of what is projected to be a five-week long trial.
23
24
3
For this same reason there is no danger that admission of these very public statements would
25 compromise the attorney-client privilege.
26 4
None of the authorities the defendant cites justify exclusion of the defendant’s denials. In
27 particular the United States v. Wecht case is inapposite. Wecht involved the admission of
newspaper articles and media coverage, not what the government seeks to introduce here. The
28
government here seeks to introduce actual statements by the defendant through his agent.
U.S. Opp. to Deft.’s Backdating Denials Motion
U.S. v. Reyes, CR 06-0556 (CRB)
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1 2. SHOULD THE DEFENDANT CONTEND THE MARKET DID NOT REACT MEANINGFULLY TO
BROCADE’S RESTATEMENT ANNOUNCEMENT, THE COURT SHOULD PERMIT
2 INTRODUCTION OF REYES ’ CONTEMPORANEOUS STATEMENTS TO THE MARKET .

3 The government anticipates that Reyes will advance the defense that no one cared about

4 his backdating. In particular, the defendant is expected to argue that the market did not react in

5 any substantial measure to Brocade’s January 24, 2005 restatement announcement, such that his

6 conduct was not material, an element of the government’s case.

7 But to the extent the market did not react as substantially as it might have, there is a very

8 good explanation, which the government ought be entitled to explore: During a January 24, 2005

9 conference call with analysts about the restatement, the defendant masked the true reason he was

10 stepping down as CEO. When asked point blank about his motivation for doing so he neglected

11 to mention backdating. See Ex. E at 7 (Analyst: “the real question for me is, why now? There’s

12 definitely a lot going on here all at once . . . is it just that we’re at the end of the fiscal year and,

13 Greg [Reyes], it was time just to move on, or are there a number of other things going on here . .

14 . ?” (emphasis added). Reyes glossed over the true reason, instead replying that “quite frankly

15 this is the right time to hand over the baton” and continued that he was “totally supportive of

16 what the audit committee has concluded, I’m totally supportive of the board . . . .” Id. And when

17 asked why he did not retain the Chairman role, he did not reveal that he had been terminated

18 because of backdating but instead stated that it was a “natural transition.” Id. at 10. The

19 government’s view is that these types of statements muted the response to what the defense will

20 argue was a small market reaction to the January 24, 2005 restatement announcement.

21 To the extent the defendant does not advance this defense, the United States agrees that

22 the relevance of the defendant’s January 24, 2005 statements is diminished. Certainly, however,

23 the United States is entitled to rebut any such defense with evidence exploring why the market

24 did not react more. Although it is true the defendant is not accused of misrepresenting any fact in

25 his public statements, his statements are surely relevant to rebut a defense that no one cared about

26 options backdating and that it was immaterial. It is critical for the jury to understand the

27 statements that the market had, and more importantly to know that the market did not have the

28 full story. In sum, the defendant’s January 24, 2005 statements are probative because the

U.S. Opp. to Deft.’s Backdating Denials Motion

U.S. v. Reyes, CR 06-0556 (CRB)
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1 defendant’s failure to disclose that he was leaving because of the backdating muted the size of
2 the market’s reaction.5
3 CONCLUSION
4 The Court should overrule the defendant’s objection to the introduction of his August
5 2006 statements denying backdating, as well as his objection to introduction of his January 24,
6 2005 testimony should he advance the defense that the market did not react meaningfully to his
7 backdating.
8 DATED: February 9, 2010
9 /S/
DAVID L. ANDERSON
10 Acting United States Attorney
11
ADAM A. REEVES
12 Assistant United States Attorney
13
KATHRYN R. HAUN
14 Assistant United States Attorney
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The defendant’s January 24, 2005 statement that he was “totally supportive” of the Audit
Committee would also be relevant should the defendant attack the Audit Committee’s
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investigation, as this statement indicates the defendant’s approval of that investigation.
U.S. Opp. to Deft.’s Backdating Denials Motion
U.S. v. Reyes, CR 06-0556 (CRB)
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