Appeal from the United States District Court for the Northern District of California Charles R. Breyer, District Judge, Presiding D.C. No. 3:06-cr-00556- CRB-1
The opinion of the court was delivered by: M. Smith, Circuit Judge:
Argued and Submitted May 10, 2011-San Francisco, California
Before: Ronald M. Gould and Milan D. Smith, Jr., Circuit Judges, and Algenon L. Marbley, District Judge.*fn1
Opinion by Judge Milan D. Smith, Jr.
Defendant-Appellant Gregory Reyes, the former Chief Executive Officer of Brocade Communications (Brocade, or the Company), appeals his conviction in a second criminal trial for (1) securities fraud and making false filings with the Securities and Exchange Commission (SEC) in violation of 15 U.S.C. §§ 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5; (2) falsifying corporate books and records in violation of 15 U.S.C. §§ 78m(b)(2)(A) and 78ff, and 17 C.F.R. § 240.13b2-1; and (3) making false statements to auditors in violation of 15 U.S.C. § 78ff and 17 C.F.R. § 240.13b2-2. Reyes was previously convicted of violating these statutes, but we vacated that conviction because of prosecutorial misconduct, and remanded for a new trial. United States v. Reyes, 577 F.3d 1069 (9th Cir. 2009). In this appeal, Reyes contends that his second conviction should also be vacated, and the case dismissed, because of (a) prosecutorial misconduct, (b) insufficient evidence of materiality to support his conviction, and (c) various evidentiary and instructional errors at trial. We affirm.
Brocade develops and sells data switches for networks. It became a publicly traded company in 1999. Reyes was hired in 1998, and during his tenure served as CEO and Chairman of the Company's Board of Directors (Board). Brocade offered stock options to its newly hired employees, and its employees generally could also earn stock options through annual incentive programs. These options gave employees the right to purchase Brocade stock at a fixed exercise (strike) price on or after a specific vesting date. A stock option is "inthe-money" if the strike price is below the stock's current market value. "Backdating" stock options means that an option's grant date and strike price are recorded retroactively. During the relevant time period, backdating of Brocade stock options was not illegal as long as the benefit to Brocade employees was recorded on the Company's financial records as a non-cash compensation expense to Brocade. See Reyes, 577 F.3d at 1073. This accounting treatment was required by the then-applicable Accounting Principles Board Opinion No. 25 (APB 25).*fn2 It is undisputed that the stock options relevant to this appeal were backdated, and were not properly entered in the Company's books, as then required by APB 25.
Reyes approved grants of stock options to Brocade employees from 2000 through 2004. Company policies permitted Reyes (as a sort of one-person committee) to approve grants of stock options to non corporate officer employees. However, a committee of outside directors, who comprised the Compensation Committee, was required to approve the grant of stock options to Company officers and the full Board of Directors was required to approve the grant of stock options to non-officer directors. Committee minutes or unanimous written consents were used to document the number of options granted to specific employees as of a particular date.
In 2004, Brocade's Board of Directors began investigating some of the Company's accounting practices with respect to the granting of stock options to new employees. In early 2005, Brocade changed some of its accounting practices, and announced that Reyes had resigned as CEO and Chairman. Concerned, the SEC and Department of Justice undertook a joint investigation into Brocade's option accounting, which led to the SEC filing civil complaints against Reyes and several others involved in the granting of stock options and accounting practices at Brocade.
On August 10, 2006, the Government charged Reyes with committing criminal securities fraud, mail fraud, falsifying corporate books and records, and violating related statutes and regulations. In August 2007, Reyes was found liable on all counts except the mail fraud charge, which was dismissed before trial. On appeal, we vacated Reyes's conviction and remanded for a new trial after finding prosecutorial misconduct. Reyes, 577 F.3d at 1078-79. Specifically, we held that the prosecution knew that several employees of Brocade's Finance Department had given pre-trial statements to the Federal Bureau of Investigation acknowledging that the Finance Department knew about Reyes's and the Company's stock option backdating practices, but that during closing argument, the prosecution knowingly and falsely claimed that the Finance Department did not know about the stock option backdating. Id. at 1076-77. We held that this deception was material because it went to Reyes's defense that he relied on others. Id. at 1078.
After a second five-week jury trial in February 2010, Reyes was acquitted on a conspiracy charge but convicted on all other counts, including: (1) securities fraud and making false filings with the Securities and Exchange Commission (SEC) in violation of 15 U.S.C. §§ 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5; (2) falsifying corporate books and records in violation of 15 U.S.C. §§ 78m(b)(2)(A) and 78ff, and 17 C.F.R. § 240.13b2-1; and (3) making false statements to auditors in violation of 15 U.S.C. § 78ff and 17 C.F.R. § 240.13b2-2. Reyes was sentenced to 18-months imprisonment, two years of supervised release, and was fined $15,000,000. Reyes timely appeals.
JURISDICTION AND STANDARDS OF REVIEW
We have jurisdiction under 18 U.S.C. § 1291.
We review the district court's rulings on alleged prosecutorial misconduct for an abuse of discretion. United States v. Steele, 298 F.3d 906, 910 (9th Cir. 2002); see also United States v. Murillo, 288 F.3d 1126, 1140 (9th Cir. 2002) (applying abuse of discretion standard to the denial of a motion for new trial based on prosecutorial misconduct). Issues of prosecutorial misconduct involving mixed questions of fact and law are reviewed de novo. United States v. Bracy, 67 F.3d 1421, 1433 (9th Cir. 1995). Harmless error review applies when a defendant timely objects to prosecutorial misconduct. United States v. Blueford, 312 F.3d 962, 973-74 (9th Cir. 2002). When reviewing for prosecutorial misconduct, we consider in the context of the entire trial "whether it is more probable than not that the prosecutor's conduct materially affected the fairness of the trial." United States v. McKoy, 771 F.2d 1207, 1212 (9th Cir. 1985).
Plain error review applies when a defendant fails to object to alleged prosecutorial misconduct before the district court. United States v. Sullivan, 522 F.3d 967, 982 (9th Cir. 2008); United States v. Geston, 299 F.3d 1130, 1134 (9th Cir. 2002). To establish plain error, a defendant must establish that (1) there was error, (2) the error was plain, and (3) the error affected his "substantial rights." Geston, 299 F.3d at 1135. "Under this standard, a conviction can be reversed only if, viewed in the context of the entire trial, the [claimed] impropriety seriously affected the fairness, integrity, or public reputation of judicial proceedings, or where failing to reverse a conviction would result in a miscarriage of justice." Id. (citation omitted).
We review de novo the question of whether a trial court's jury instruction accurately states the law. United States v. Hopper, 177 F.3d 824, 831 (9th Cir. 1999). We review for abuse of discretion a district court's formulation of jury instructions. United States v. Franklin, 321 F.3d 1231, 1240-41 (9th Cir. 2003), cert. denied, 540 U.S. 858 (2003). Thus, while the question of whether the district court's instructions adequately covers a defense theory is reviewed de novo, we "look to the instructions as a whole and a refusal to give a proper specific instruction can be ...