Just Following Orders

Seems that the excuse “I was just following orders” never works.

From SFGate:

Prosecutors argued Monday that a former Brocade Communications Systems Inc. executive was a key enforcer in an illegal accounting scheme, while her attorney said she was just following instructions when she backdated stock options.

Stephanie Jensen, Brocade’s former vice president of human resources, went on trial Monday in U.S. District Court for the Northern District of California on felony charges of conspiracy and falsifying corporate records. If convicted, she faces up to 25 years in prison.

Assistant U.S. Attorney Adam Reeves said Jensen instructed her staff to choose favorable dates in the past for stock options awards and warned them never to communicate by e-mail about the company’s stock option activities.

Reeves said Jensen directed and enforced the practices and knew they were illegal.

“She deliberately falsified Brocade’s options grant records and carefully tried to cover up her scheme so that the auditors, the company’s watchdogs, would never know what happened,” Reeves said. “It was simple, it was ingenious and it was a total fraud.”

Jensen’s lawyer said her client implemented policies already in place when she joined Brocade.

“This is not her scheme, this is not her idea, this is a process the company used and she followed,” lawyer Jan Little said.

Jensen, 50, sat with her hands clasped and looked at the judge and the jury.

Little said Jensen doesn’t have a finance background and didn’t know San Jose-based Brocade wasn’t properly recording compensation charges for options. Prosecutors contend those omissions distorted the picture investors saw of the company’s profitability.

Jensen “never for one second thought those documents were false, or wrong or illegal,” Little said.

Brocade makes switches used to connect corporate servers and data storage systems. With a booming stock price and hot technology during the dot-com heyday, the company was in a fierce battle for engineering and sales talent when the alleged offenses occurred between 2000 and 2004.

Jensen is the second person to go on trial for alleged stock options malfeasance since the Justice Department began probing allegations of options backdating at more than 100 companies.

Her former boss, former Brocade chief executive Gregory Reyes, was convicted in August on 10 counts of securities fraud and faces up to 20 years in prison. A sentencing date has not been set.

At least 10 executives at several companies have been criminally charged as a result of federal options probes.

The scandal has prompted hundreds of businesses to review their financial records and some to wipe out hundreds of millions of dollars in previously reported profits to account properly for options-related charges.

Jensen, whose office processed all the paperwork for new hires, is accused of changing the dates on offer letters and other documents to make it appear that prized new workers were hired and granted options before their actual hire date. The practice makes the options more valuable because they have appreciated more by the time the employees exercised them.

Backdating options isn’t illegal, but companies must properly account for it. And if the amount an employee can pay for the stock is below the trading price on the day the options were granted, the company must absorb charges for that difference, which can be substantial.

Prosecutor Reeves said Monday that while Reyes bears a heavy responsibility for the scheme, Jensen was the “key person who ensured that the details of this fraud were carried out as they were.”

Jensen was originally charged with eight felonies, but the government unexpectedly dropped six charges, including the more serious allegations of securities fraud. She is now charged with conspiracy to falsify records and falsifying records.

Witnesses the government called Monday included a former Brocade human resources employee who worked under Jensen. The trial is expected to last two to three weeks.

How many times have any one of us been told to bend the rules per C-Suite dictate?

It’s nice to say that we would all stand up for what we believe in. But if, by refusing, your job is on the line? If it means changing the way things are done? If you’re “just following orders”?

Damn straight. That’s what the “Whistleblower Laws” are for.

(Pardon my being sanctimonious – it’s a bit of a sore spot with me.)

Even so, my heart goes out to her. I don’t like seeing fellow HR professionals on trial.