Legal News

Broadcom co-founder and CFO charged with stock option backdating

By Jason Siegel

LOS ANGELES ? Broadcom Corp.'s co-founder and former chief executive officer, Henry T. Nicholas, and the former chief financial officer, William Reuhle, have been charged with stock option backdating that lead the Irvine, Calif.-based broadband communications company restate more than $2.2 billion in January 2007, according to an indictment unsealed on Thursday.

In a second indictment unsealed on Thursday, Nicholas is accused of maintaining controlled substances, such as cocaine, methamphetamine and ecstasy, which he used to spike the drinks of industry executives and Broadcom employees and customers.

The first indictment alleges that Nicholas and Ruehle backdated millions of stock option grants from 1999 to 2005 to reward Broadcom employees, including Ruehle, while failing to record stock-based compensation expenses that would have hurt the company's share price. Nicholas also signed falsified documents, including those filed with the Securities and Exchange Commission, to authorize the stock option grants.

"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, of the Central District of California, in a prepared statement.

The indictment charges them with conspiracy, securities fraud, false certification of financial reports, false statements in reports filed with the SEC, lying to accountants, falsification of corporate books and records, and honest services mail and wire fraud. All the charges could result in a maximum sentence of 340 years for Nicholas and 370 years for Ruehle.

Nancy Tullow, the former executive vice president of human resources at Broadcom, pleaded guilty to obstruction of justice last November. She has agreed to cooperate in the case.

In the second indictment, Nicholas was charged with violations of federal narcotics law. The indictment alleges that for nine years, Nicholas distributed ecstasy, cocaine and methamphetamine from his homes in Laguna Hills and Newport Coast, Calif., a warehouse in Laguna Niguel, Calif., and a condominium in Las Vegas.

The indictment alleges that Nicholas used ecstasy to spike drinks at parties and give to prostitutes and escorts he hired. In one instance, Nicholas and others smoked so much marijuana during a trip on a private plane from Orange County to Las Vegas that the pilot had to wear an oxygen mask.

The narcotics charges could carry a sentence of 20 years in federal prison.

Last month, the SEC filed a civil suit against Nicholas, Ruehle, former chairman and chief technology officer Henry Samueli and general counsel David Dull. The SEC's suit alleges that Ruehle and Dull personally benefited from the backdating scheme by receiving grants totaling more than $100,000 and $1.8 million, respectively.

Nicholas surrendered to FBI agents on Thursday before the indictments were unsealed.

-- Amanda Bronstad

Full post as published by Legal Pad | LA on June 09, 2008 (boomark / email).