Message to executives: Watch what's in that drink.
On Wednesday, a U.S. district attorney for the central district of California indicted Broadcom
(nasdaq:
BRCM -
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co-founder and former Chief Executive Henry T. Nicholas, 48, and former
Chief Financial Officer William Ruehle, 66, on charges of stock-options
manipulation. Nicholas was also charged with using and distributing
illegal drugs. Nicholas is a self-made billionaire whose wealth Forbes
estimates to be around $1.8 billion. Among the charges: Nicholas spiked
the drinks of industry executives and Broadcom partners with drugs such
as ecstasy, cocaine and methamphetamine.
The charges were made public Wednesday after Nicholas surrendered to special agents from the FBI.
The government alleges that between 1999 and 2005, Nicholas and
Ruehle fraudulently backdated millions of stock option grants, failed
to record stock-based compensation expenses and falsified documents.
Broadcom was forced to restate several years of financial results in
January 2007, reporting an additional $2.2 billion in expenses. The
restatement was the largest any company has had to make in association
with the stock-options scandals that have dogged the industry for the
past few years.
"Nicholas and Ruehle were involved in a wide-ranging fraud that
resulted in the largest financial restatement related to options
backdating in the United States," said U. S. Attorney Thomas P. O'Brien
in a statement.
Mike Li, vice president of engineering at Watercooler, a Web
applications developer in Mountain View, Calif., says he's not
surprised by the backdating indictment. "A bunch of companies did it,
and they're being caught now," he says.
"The drug charges are like ... wow!" Li says. "This guy seems like
he's got some issues. Who thinks about spiking the drinks of your
technology executives? I am a little bit floored that someone at that
level would resort to things like that."
Although government investigators have pursued cases of stock-options abuse in Silicon Valley,
the penalties they have won have been relatively modest. The government
carried out a high-profile investigation against former investment
banker Frank Quattrone, which fizzled. Questions raised about Apple
Chief Executive Steve Jobs have been dismissed.
Broadcom may be a different story. When Broadcom restated its results
in January 2007, the company tried to downplay concerns--and tried to
shift blame to former human resources head Nancy Tullos. Last year,
Tullos pleaded guilty to charges of obstructing justice and cooperated
with the government's investigation of the case.
Legal observers suggested Wednesday that pairing the stock-options
charges against Nicholas and Ruele with drug charges (just against
Nicholas) was a bit of theatrics designed to hammer home a message.
This is a "'talking indictment,'" says John Coffee, professor of law at
Columbia University. "It's done to influence the jury and press."
"Broadcom has been implicated publicly in backdating options for a
while," says Edward Deibert, a director at San Francisco-based law firm
Howard Rice Nemerovski Canady Falk & Rabkin. "Theirs was one of the
bigger, more flagrant abuses of the backdating scandal. So an
indictment on those issues is not very surprising."
The backdating and drug charges seem like "dissonant, unrelated
events," says Deibert. "It could just be a heaping on and making things
harsher for him. [The drugs] makes a bigger splash of what [the
government] is doing. This is the flashiest indictment so far."
The government seems to have plenty of details to work with. Nicholas'
larger-than-life reputation has long been the stuff of gossip within
Silicon Valley. In Broadcom's early days, the stories were deftly
showcased to portray Nicholas as a hard-charging, passionate executive
who pumped iron and subsisted on PowerBars.
As early as 2002, however, company directors began trying to distance Broadcom from Nicholas. A 2004 story in The Wall Street Journal
quotes Broadcom's lead independent director as telling Nicholas, "I
don't want you to be the CEO anymore. I don't think you're competent to
direct people."
Nicholas resigned from Broadcom in 2003, claiming he was trying to
salvage a failing marriage. The couple went through a bitter divorce.
The indictment describes how Nicholas used and shared ecstasy,
cocaine, and methamphetamine at his homes in Laguna Hills, Newport
Coast and Las Vegas.
At parties, Nicholas reportedly served up spiked drinks to industry
executives and hired prostitutes. Once, while riding in a private plane
between Orange County, Calif., and Las Vegas, Nicholas and his
colleagues apparently smoked so much marijuana that the pilot of the
plane had to don an oxygen mask.
The government charges also include
descriptions of multiple invoices to Nicholas for "party favors," that
were tablets of ecstasy and other drugs. The government alleges that in
June 2002, Nicholas paid a former employee who had detailed knowledge
of the executive's drug use $1 million in what was effectively "hush
money."
The indictment was certainly getting
the attention of executives in Silicon Valley Wednesday. Even tiny
start-ups now pay scrupulous attention to any details of stock-option
plans, asserts Keith Rabois, vice president of business development at
Slide, a San Francisco-based Web applications company.
And for the drugs? "That's crazy!" Rabois says. "That's never happened
at any company I'm familiar with, except maybe lacing drinks with
caffeine. I can't even fathom that kind of activity."
Tom Van Riper contributed to this report.
I would have to say that the drug charges make the stock option charges seem less important.
Henry Nicholas pleads Not Guilty. 6/18/2008
http://www.findingdulcinea.com/news/business/May-June-08/Former-Broadcom-CEO-Pleads-Not-Guilty.html
Samueli admits guilt - June 23, 2008
Los
Angeles -- Henry Samueli, a co-founder of Broadcom Corp. and owner of
the NHL's Anaheim Ducks, pleaded guilty in Los Angeles Monday to a
felony stock option charge.
Under the plea deal reached with federal prosecutors, the
billionaire businessman will pay $12.2 million in penalties and will be
on probation for five years, the Los Angeles Times reported.
During his 40-minute appearance in U.S. District Court, Samueli
admitted he lied to federal authorities about his role in the
backdating of stock options at Broadcom, a major computer chip company
based in Irvine, Calif.
"Guilty, your honor," he said.
He is to be sentenced Aug. 18.
The presiding judge said it was likely Samueli would be called to
testify at the trial of Broadcom co-founder Henry T. Nicholas III, who
faces 24 felony counts of misdating stock options to make them more
valuable to employees and of distributing drugs. William J. Ruehle,
Broadcom's former chief financial officer, also has been indicted on the options charges. Both have pleaded not guilty.
The trio, along with former corporate general counsel David Dull, also face a civil fraud lawsuit brought by the U.S. Securities and Exchange Commission.
Copyright 2008 by United Press International.
Broadcom backdating trial set for April
Judge agrees to push drug case against co-founder Nicholas to November '09
E. Scott Reckard, Los Angeles Times
Wednesday, July 2, 2008
A federal judge on Tuesday
scheduled the stock manipulation trial of Broadcom Corp. co-founder
Henry T. Nicholas III for April and rejected prosecutors' request to
first try Nicholas on drug charges.
Nicholas, a former chief executive at Broadcom, has pleaded not
guilty to a 21-count indictment of improperly backdating millions of
stock options to reward employees at the Irvine chip designer.
A separate four-count indictment charges the 48-year-old
billionaire with distributing cocaine, methamphetamine and ecstasy at
three homes and a warehouse he used for parties, and with spiking the
drinks of technology executives with drugs. He has denied those charges
as well.
Assistant U.S. Attorney Kenneth Julian told U.S. District Judge
Cormac Carney that the drug case is relatively simple and should be
tried quickly, with a break before beginning the options case to let
the publicity die down.
Carney brushed aside the request.
"From where I'm sitting, the options case is far more important to
the public interest," he said, scheduling the drug trial for Nov. 10,
2009.
Defense attorneys had asked Carney to give them 15 months to
prepare for the complicated stock-option case, but the judge said he
would "get nervous" about such a long delay. He instead chose a date
about nine months in the future: April 7. He said the defense could
request more time later if necessary.
"If you need more than nine months, I'll give it to you as long as everyone's working hard," he said.
Broadcom's former finance chief, William J. Ruehle, is to be tried
along with Nicholas for his role in the alleged options scheme. He has
pleaded not guilty in the options case and has not been charged in the
drug case.
Nicholas loses bid to avoid trial on stock option manipulation
http://www.latimes.com/business/la-fi-nicholas16-2008dec16,0,6308646.story
December 16, 2008
Henry
T. Nicholas III, the billionaire co-founder of Irvine computer chip
maker Broadcom Corp., has lost a battle in his effort to avoid a trial
on charges that he illegally manipulated stock options.
U.S.
District Judge Cormac Carney ruled Monday against 13 motions to dismiss
the case made by attorneys for Nicholas and another Broadcom executive.Nicholas and William J. Ruehle, former Broadcom
Corp. chief financial officer, were indicted by a grand jury in June on
21 counts of fraud for backdating millions of Broadcom stock options.
Nicholas also was accused of supplying drugs and prostitutes to
Broadcom customers. Ruehle and Nicholas, who stepped down as Broadcom's
chief executive in 2003, have pleaded not guilty.
Nicholas'
attorneys said that the U.S. attorney's office had leaked information
to the news media that damaged Nicholas, had bullied witnesses and had
coerced a former Broadcom employee into pleading guilty to a
nonexistent crime to get her to testify.
"Defendants have not
provided sufficient evidence that the government engaged in misconduct
with respect to potential witnesses in its case against defendants,"
Carney wrote.
Carney did order prosecutors to provide the defense information about the grand jury selection.
Heisel is a Times staff writer.
william.heisel@latimes.com