Tags: US | Broadcom | Backdating | Nicholas

Charges Against Ex Broadcom CEO Dismissed

Thursday, 28 January 2010 03:29 PM

A federal judge on Thursday dismissed felony narcotics charges and two civil forfeiture cases against Broadcom Corp. co-founder and former CEO Henry T. Nicholas III, wiping the slate clean for a man who once faced the possibility of decades in prison.

Prosecutors asked U.S. District Judge Cormac J. Carney to dismiss the narcotics case after he threw out a parallel securities fraud case against Nicholas and the chipmaker's former chief financial officer six weeks ago. In doing so, the judge cited prosecutorial misconduct and a lack of evidence for the charges.

Carney, however, acknowledged Nicholas' apparent drug problem before dismissing the narcotics indictment.

"From the evidence ... as well as what's been attained from the pretrial services, it does seem that you had a serious drug problem," Carney said in court. "You paid dearly for that. You lost your marriage, you lost your job, your reputation has been tarnished, but from what I gather you've been clean and sober for two years and I commend you for that."

Outside court, Nicholas thanked the judge and said he never lost faith in the judicial system. He said he would throw himself into charitable projects, including advocating for victim's rights and continuing to invest in an academic center he started in downtown Santa Ana. He didn't rule out a returning to involvement with Broadcom.

"Broadcom is like a family to me," he said. "You never know what little idea you're going to have."

The judge's rulings Thursday are an almost complete reversal of fortune for Nicholas, who just months ago faced parallel criminal indictments for narcotics and illegal stock-option backdating at Broadcom, a sweeping Securities and Exchange Commission civil suit, and the potential loss of his luxury jet and multimillion-dollar properties in Newport Beach and Las Vegas.

But six weeks ago, Carney gave federal prosecutors a public dressing-down and threw out the high-profile securities fraud case against Nicholas and the SEC case. He also ordered prosecutors to show why they should be able to continue with the narcotics case, and he placed the forfeiture issues on Thursday's docket himself.

"Numerous high tech companies were doing exactly what Broadcom was doing, particularly IBM and Microsoft," the judge said of stock-option backdating. "I do think they weren't playing fair. But that doesn't mean it's a crime, and that doesn't mean that companies and individuals, from where I'm sitting, are exposed to civil liability."

Despite the judge's sweeping actions, Nicholas could still face some legal hurdles.

Prosecutors have reserved the right to appeal the securities fraud case against Nicholas, said Thom Mrozek, spokesman for the U.S. attorney's office. They also plan to appeal an earlier decision by Carney to set aside a guilty plea by Broadcom's other co-founder, Henry Samueli.

Samueli, who has since been reinstated as Broadcom's chief technical officer, pleaded to a single count of lying to the Securities and Exchange Commission.

An SEC attorney also told the judge her agency intended to refile its civil case against Nicholas and three other former Broadcom executives, including Samueli. Carney ordered the SEC to refile within seven days.

Carney on Thursday also set aside a single guilty plea by former Broadcom human resources executive Nancy Tullos, who agreed to plead guilty to obstruction of justice and cooperate with prosecutors.

"I don't think she's guilty of the crime that was charged," Carney said. "I feel it would be a great injustice if senior executives get a pass ... and a lower-level officer has to take the fall for it."

The government's high-profile case against the executives of one of the world's leading chipmakers began to unravel in December, when Samueli testified under a rare grant of immunity at the securities fraud trial of former Broadcom CFO William Ruehle.

After hearing that testimony, Carney set aside Samueli's guilty plea and dismissed the entire securities fraud case against Nicholas and Ruehle, just two days before a jury was to begin deliberations in Ruehle's trial.

Carney said evidence showed prosecutors tried to influence the testimony of three key witnesses, improperly contacted witnesses' attorneys and leaked information about grand jury proceedings to the media.

The judge then threw out the backdating case against Nicholas because he said Nicholas would need the same witnesses and could not receive a fair trial.

At the time, Carney also asked prosecutors to show why the narcotics case against Nicholas should not also be thrown out — and the government moved to drop the charges earlier this month.

Carney dismissed the civil forfeiture cases Thursday in the "interest of justice" because the underlying criminal narcotics case against Nicholas had been tossed. In those cases, prosecutors sought to seize Nicholas' 1993 Gulfstream jet and properties in Las Vegas and Newport Beach because they had been involved in alleged drug crimes.

In its initial indictment, the government alleged Nicholas stored and distributed ecstasy, cocaine and marijuana to friends and business associates from the properties and maintained a "drug warehouse" in Laguna Niguel.

Nicholas and Samueli started Broadcom in 1991 and took it public in 1998. The company grew to 7,000 employees worldwide and is a leading manufacturer for the chips used in everything from cable TV boxes to cell phones. It had nearly $5 billion in revenue last year.

Backdating involves retroactively setting a stock option's exercise price to a low point in the stock's value, boosting profits when the shares are sold. It is legal when properly accounted for, but if not properly disclosed it can allow companies to overstate profits and underpay taxes.

Broadcom was ultimately forced to write down $2.2 billion in profits after its actions were uncovered.

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A federal judge on Thursday dismissed felony narcotics charges and two civil forfeiture cases against Broadcom Corp. co-founder and former CEO Henry T. Nicholas III, wiping the slate clean for a man who once faced the possibility of decades in prison.Prosecutors asked U.S....
Thursday, 28 January 2010 03:29 PM
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