Ex-Brocade (NASDAQ: BRCD) CEO Gregory L. Reyes Jr. has been sentenced to 21 months in prison with a $15 million fine for orchestrating a scheme to backdate stock options at the company, illegitimately shifting wealth from the company's owners to its executives.

Judge Charles R. Breyer of Federal District Court in San Francisco, who sentenced Mr. Reyes, said that his efforts to obstruct justice had led to the stiff penalty: "This offense is about honesty. Every time Gregory Reyes falsified documents, repeatedly, over a three-year period, he was lying. That is the core of the defendant's criminal conduct."

Reyes was the first executive to be tried on criminal charges related to options backdating, and he was convicted onten counts of securities fraud.

According to the New York Times, Reyes cried while speaking to the judge before the sentencing: "I'm sorry," Mr. Reyes said, between sips of water and long pauses to compose himself. "There is much that I regret, and if I could turn back the clock, I would."

Is he really remorseful? He'll remain free without bail until a federal appeals court hears his case. If he's so full of remorse, why doesn't he just go to jail for a few months and skip the appeal?

It's good to see that law enforcement is cracking down on at least a few executives who think public companies should be used as their own personal honey pots. Now we need to see boards of directors hold their executives to higher standards too.

We now have the first large settlement in the wake of the options backdating scandal. Hewlett-Packard (NYSE: HPQ) will have to shell out $117.5 million to settle allegations of backdating at Mercury Interactive, a company HP acquired last year. Given that Hewlett-Packard earned over $6 billion in its most recent year, this is hardly disastrous news. The Street is probably glad to have all this behind it -- a quantifiable settlement is better than the threat of a massive judgment hanging over head.

But the settlement is important for another reason. Up until now, the largest settlement has been just $18 million, but this deal means investors have to take these pending lawsuits seriously -- especially at smaller companies.

To find out if a stock you own is involved in this mess, go through the commitments and contingencies, legal proceedings, or factors that could affect future results portion of the company's most recent 10-K. HP disclosed its options woes like this, with additional detail following:

In connection with our acquisition of Mercury, we have assumed responsibility for various stockholder derivative matters and regulatory inquiries that were pending against Mercury at the time of the acquisition, which could result in significant legal expenses and may result in the payment of substantial amounts in damages.

$117.5 million won't affect HP in any material way -- but other companies may not be so lucky.

When Hewlett-Packard Co. (NYSE: HPQ) bought Mercury Interactive a little over a year ago, the company probably did not know that a pretty large settlement would be forthcoming from several pension funds that accused the now-subsidiary of stock-option backdating. The settlement reached earlier this week was $117.5 million, the largest of its kind.

The second-largest out-of-court settlement due to accusatory stock options backdating was $18 million, so the Mercury case seems unique: why such a large settlement here? HP knew of the shenanigans when it purchased the company in 2006, although the extent was probably unknown at the time. Even with the $4.5 billion purchase price and the $117.5 million settlement, Mercury was still a wise investment for HP moving forward, as it's already become a lucrative area within the company.

HP wants this situation and settlement to quickly be swept under the rug, which is no surprise. HP is shining these days under operational CEO Mark Hurd and from all appearances, can do little (or no) wrong on its march to continue crushing sales numbers and margins from competitors like IBM Corp. (NYSE: IBM) and Dell, Inc. (NASDAQ: DELL). Oddly, the company has done an admirable job of taking focus away from the corporate spying situation from a year ago and other problems by using its core business strengths to perform very well quarter to quarter.

The SEC's informal investigation of Take-Two Interactive Software, Inc. (NASDAQ: TTWO) has gone formal. This comes after years of controversy surrounding the company including allegations of overstated earnings, options backdating, hidden porn in the company's Grand Theft Auto video game, and the current battle for control of the company. The formal investigation will, according to Herb Greenberg, give the SEC "carte blanche to subpoena anybody and everybody."

Interestingly, the stock didn't respond strongly to the news, perhaps a reflection of the changes in management that have occurred -- the market realizes there were massive governance problems, and expects the new management to clean things up. Still though, given the controversy and need for change, the shares don't look particularly cheap to me.

For more on my take on the situation at Take Two, read this piece from April 2.

Steve Jobs, the genius behind the iPod and Mac, isn't above the law. The Apple Inc. (Nasdaq:AAPL) co-founder is already facing questions about backdated options at that company. Now comes word from the Wall Street Journal that he helped negotiate a deal with noted Pixar animator John Lasseter that included a "large stock options grant with an especially well-timed date."

The exact nature of Jobs involvement isn't clear but this certainly doesn't look good. Lasseter's grant is one of several awarded by Pixar at yearly lows, which has raised questions about whether they were improperly backdated, the paper said.

If Jobs had a role in backdating options at either Apple or Pixar, he deserves to be punished. I don't think prison is in order, but the SEC may not allow him to be an officer of a publicly traded company for a period of time. For Apple shareholders, though, this doesn't have to be the end of the world.

Jobs could take on a role at Apple similar to what Martha Stewart has at Martha Stewart Living Omnimedia Inc. (NYSE:MSO). Stewart's company has been run very well by Chief Executive Susan Lyne since Stewart had her own legal problems. This has turned out to be a very good thing for shareholders because it's allowed the diva of domesticity to focus on doing what she does best. Of course, Stewart still has a huge say in the company since she is also a major stockholder.

The Financial Times reported today that the SEC is nearing the completion of a formula to penalize companies for backdating options. While the commissioners remain divided on the issue, the consensus is that the penalty should be related to how much the company benefitted financially from the backdating.

One area of debate is whether companies should be fined large amounts, which would directly harm the shareholders that the SEC is seeking to protect. While there is universal agreement that executives should be fined personally, this is a trickier issue. Fines collected would go into a "fair fund" to be redistributed to shareholders who were harmed. But as anyone who has ever received a payout in a lawsuit related to corporate malpractice knows, legal fees etc. often eat up a substantial amount of the damages.

My feeling is that fining executives enormous sums of money is the best way to combat this.

The sigh of relief felt by Apple Inc. (Nasdaq:AAPL) investors after an internal probe cleared CEO Steve Jobs of misconduct in the options backdating scandal may have been premature.

Investigators from the Securities & Exchange Commission and the U.S. Department of Justice met with the Apple co-founder in San Francisco last week, according to Bloomberg News. What was said at the meeting isn't known and no one is talking officially.

Jobs isn't going to be able to do a flashy product demo to convince the feds that he's done nothing wrong. As corporate governance activist Nell Minow told Bloomberg it's their opinion that ultimately matters and not Apple's. The iPod maker hasn't said anything about why it faked a board meeting to approve a grant to Jobs or which options were backdated, Bloomberg said.

Maybe now is a good time to start providing details.

Shares of Apple, which have jumped about 14 percent over the past year, were trading down in pre-market trading.

Well, so Home Depot (NYSE: HD) comes clean regarding their options dating issues. They'll probably skate on the whole mess, many corporations do. That makes me just a bit upset. It should upset you too. For my fellow stock market novices, I can explain it like this: some backdating is nearly harmless, a matter of someone forgetting to sign a paper when it was due. Most backdating is really quite serious, involving the manipulation of the dates of financially critical variables which then directly affects values and payouts.

It could be similar to shifting receipts by a store owner to avoid a tax load. The store could date December sales receipts forward into January to reduce the amount of tax due for the current year. In this case it's forward dating but the principle is the same, change a date to adjust an effect. Adam Lashinsky, over at Fortune Magazine outlined the two backdating principles for me:

Backdate or Look Back options: These are stock options which are given out as compensation on a specific date and then dated backward to a time when those options were at a lower value, thereby creating instant increased value at a previously lower cost.

Forward-dating or spring loading options: This involves purposely waiting until a stock value drops or until bad news is released to distribute shares to the recipients thereby handing over the options in a deflated state. The value then generally rises "organically" with the expected value rebound. This scenario may actually fall under the heading of smart business, but it's manipulative just the same.

The SEC has their work cut out for them with these options dating issues. Regulations are scant and they're tough to apply. How do you account for the options issuers state of mind and intent? It needs to be shown that there was an expected outcome and that the manipulations were intended to mislead. For me it all comes down to one thing and that one thing is integrity. Liar is as liar does. Anyone who falsely dates financial documents is a liar and if they had worked for me they'd be looking for a new job.

Options backdating scandals have felled many a tech CEO, and KB Home (NYSE:KBH) had the unlikely distinction of being an unlikely choice for an options backdating scandal. The company's CEO, Bruce Karatz, resigned today over stock options misdeeds. Jim Cramer (among others) didn't mourn him much, however, and said it's actually a good thing. Cramer says you have to go buy shares of KBH, because as the options scandal pressures a stock down, then it inches up, and then on the resolution of the scandal you must buy. With the CEO resigning, that is now out of the way.

Cramer said that even if you back-date options you have to think you are looking out favorably on the company down the road anyway. If a CEO was willing to take stock over cash then you should be inclined to take his lead. He thinks at 1.25 times book value that is a very cheap price. It has almost no debt. It could be a takeover target because it is so cheap. Cramer thinks private equity buyers could do it, or even a Lennar Corporation (NYSE:LEN).

KBH is widely and wrongly perceived as a California and Las Vegas homebuilder, but that isn't the whole truth, says Cramer. California is now 31% of sales and the company builds homes in 13 states. When California comes back, so will KBH. It also builds award-winning neighborhoods. He said he didn't like it when the shares were super-high, but now closer to lows he likes it.

The Wall Street Journal listed 54 companies that are currently at risk for being delisted from the Nasdaq Stock Market due to late SEC filings caused by options backdating issues. Apple Computer, Inc. (NASDAQ:AAPL) is on that list. Three companies have already been kicked out and it is anyone's guess how many more may be.

The problem is not just one for the companies. Nasdaq charges large listing fees, so if a large number of companies get pushed to the pink sheets or bulletin board, the exchange could face falling revenue. It is, potentially, a conflict of interest for Nasdaq. The exchange can allow companies a grace period while they appeal their delisting notices, but the appeal process cannot go on forever or the Nasdaq will lose its authority to act in the best interests of shareholders.

Apple's problems are particularly vexing. It is one of the most prominent companies on Nasdaq. But almost every week there are new revelations in the Apple options probe. At first the company indicated that the problems were fairly minor. Then it released information saying the Steve Jobs may have had some grants, that were later canceled, that might be involved in the investigation. Later, it was announced that Jobs was aware of the grants and the company's former CFO stepped off the board.

With the US Attorney's office and the SEC now involved in looking at backdating, the ability to file financial data is potentially being taken out of the hands of companies and their boards. A probe of any given company could take months, stretching the tardiness of SEC filing past any normal Nasdaq appeal date. That is where Apple and other companies have very real risk.

Douglas McIntyre is a partner at 24/7 Wall St.

As its CEO, William McGuire transformed UnitedHealth Group Inc. (NYSE: UNH) into a healthcare powerhouse. In the process, of course, he became a billionaire – i.e., through stock option compensation.

Well, now he is out of the corporate suite. As has been the case with many CEOs, McGuire has been ensnared in the options backdating scandal. In the past week, other high-profile CEOs have departed because of the scandal, such as the CEOs of McAfee Inc. (NYSE: MFE) and CNet Networks Inc. (NASDAQ: CNET).

Given the huge numbers, there was nowhere for McGuire to hide.

UnitedHealth hired an outside law firm to conduct an investigation. Although the language was qualified -- using terms such as "likely" -- no doubt the findings were not helpful for McGuire and the damage was done. Besides, in the highly regulated industry of healthcare, it is important to go beyond just being law-abiding.

Interestingly enough, if there was no backdating, McGuire would probably still be a billionaire. He certainly was a standout CEO. But, in the world of mega compensation, there is always the temptation to push the envelope, which, in the post-Enron world, is a huge risk.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.

At my alma mater, The Wharton School, white collar crime is taken seriously. After all, Wharton is famous for turning out such brilliant luminaries with questionable ethics (and, in many cases, stints in prison), such as Michael Milken Joseph Jett [Jett, it turns out, is not a Wharton grad and he disputes his involvement in the scandal that took down Kidder Peabody; he describes that in detail in comments below]. Business ethics is taught with a white-knuckled intensity that makes a student wonder where the dean lies on the scale between between concern and abject terror that more scandals will erupt.

Peace be with you, Dean Harker. Your graduates appear to have learned the difference between insider trading and friendly stock tips, fudging and felonies. Unfortunately, it seems that the vast majority of corporate America is ill-educated in the ways of the ethical standard. Because they're falling like so many bright orange oak leaves.

While we all wonder, will Steve Jobs be next?, we watch the mighty fall. George Samenuk (Brown University, political science) was quite the success story. He was a manager at IBM for years before taking over as Chairman and Chief Executive of McAfee, Inc. (NYSE:MFE). Today he quit over options backdating, while at the same time firing President Kevin Weiss (Princeton University, unspecified BA). Ouch! Double whammy.

While the boardroom at McAfee was all a-tizzy with pink slips and hot red faces, Shelby Bonnie (University of Virginia's famed Commerce School then Harvard Business School for MBA) at CNET Networks, Inc. (NASDAQ:CNET) was learning that his bio would momentarily be removed from the company's web site. He resigned his Chairman and CEO roles, with a bit of urging I'd imagine.

Notice something? All of these fine gentlemen have Ivy League educations. None of them, however, from Penn.

I guess the ethics education works! Ahem. Harvard? Princeton? Brown? UVa? Y'all may want to take a look at your coursework there. Or maybe just that sense of overarching fear might work. Or you could try the paddle!

Uh-oh.

The corporate scandal machine seems to be spinning ever-wider as the Wall Street Journal online shows Breaking News [updated with link, subscription required]: "Apple says an investigation has shown that CEO Steve Jobs was aware of options backdating at the company, but didn't benefit from the practice."

Full story coming soon. But the full story on options backdating has already been playing out across the U.S., and indeed, worldwide markets. Apple Computer, Inc. (NASDAQ:AAPL) isn't the only company to be accused of the practice, but if Jobs knew about it (and whether he profited seems far beside the point) he might just have to join former CFO Fred Anderson in resigning.

It just goes to show: brilliant innovators do not make smart businesspeople. We've seen it a hundred times this decade if we've seen it once. From Worldcom's Ebbers to the great and mystifying web of lies wrought by Lay and team at Enron, today's business leaders seem to be telling us: we didn't learn from our business ethics classes. We didn't learn from the 80s. We just didn't learn.

When will they learn? And whatever will happen to Steve Jobs? We await, as always, "the full story."

Apple's shares rose from $58.97 to $76.98 in the quarter ending September 29 -- an increase of 31%. Given the fact that that company has not been able to file a 10-Q since May 5th due to potential options back-dating issues, that run-up is extraordinary. The company did announce earnings, but whether there will be any restatement of earlier periods is not clear.

Apple Computer, Inc (NASDAQ:AAPL) may be doing well, but perhaps not 31%-per-quarter well. The iPod is clearly the multimedia market leader with sales in excess of 7 million units, but that growth could be slowing as the market waits for new models.

Investment firm Needham & Co. is forecasting Mac sales at above 1.5 million units for the September quarter. In the same quarter last year Mac sales were 1.2 million. However, according to Apple's 10-Q for the quarter ending 4/1/2006, Mac sales were 1.572 million, so the forecasts for the September quarter are hardly spectacular.

Then there is, of course, the matter of competition. Companies like Hewlett-Packard Company (NYSE:HPQ), Lenovo, and Dell Inc. (NASDAQ:DELL) are unlikely to part with PC marketshare easily. And companies like Microsoft Corporation (NASDAQ:MSFT)and Sandisk are entering the iPod's realm of the portable media player. Whether they are successful or not remains to be seen, but Microsoft is likely to spend hundreds of millions of dollars trying.

Citigroup downgraded Apple on valuation today noting that there was little upside to its third and fourth quarter numbers. As of 10:30 a.m. today, the stock is at down 2.38, or 3%, to $74.60.

It's starting to seem like Apple's share price run of 3% last quarter may have been a bit much.

Douglas A. McIntyre is a partner at 24/7 Wall St.