Incoming Arts Chief Sues a Major Donor

The incoming chairman of the Orange County Performing Arts Center finds himself in the delicate position of pursuing a stock fraud lawsuit against one of the center’s biggest benefactors: Broadcom co-founder Henry Samueli.

The lawsuit, filed last month by Thomas Tierney and several other high-profile Broadcom investors against Samueli and other company leaders, has been the subject of nervous speculation by county arts insiders. Some fear that the legal fight will dampen donations and force arts leaders to take sides.

Samueli has donated more than $10 million to help build the new theater and concert hall next to the Orange County Performing Arts Center in Costa Mesa. As a member of the center’s board of directors, Samueli is responsible for raising $50,000 a year.

Despite concerns that some arts patrons have voiced privately, center officials said they don’t believe the lawsuit will have any effect on donations from Samueli or anyone else and predicted no other problems when Tierney takes over as chairman of the board in July.

“I’m counting on people to rise above these issues and do what’s important for the community,” said the center’s president, Jerry Mandel.

Mandel said Samueli has committed to buy a $75,000 table for the center’s gala fund-raiser, which has raised more than $1 million annually in recent years, and said he knows of no threats from anyone to pull out their money.

Tierney, head of the fitness and nutrition company BodyWise International Inc., is one of 26 investors who filed suit in Orange County Superior Court last month. They accuse Samueli, Broadcom co-founder Henry T. Nicholas III and other top officials of the Irvine chip maker of fraud and misrepresentation.

The suit says Broadcom inflated future sales and gross margins when Samueli, Nicholas and others sold nearly $80 million in stock options before Broadcom’s trading price tanked last fall.

The suit isn’t the first against Broadcom, whose accounting practices first came to light last year. Other investors filed a similar lawsuit in federal court, which was dismissed Monday.

A Broadcom lawyer said Tierney’s suit is a replica of the one dismissed Monday and predicted it would have a similar outcome.

“We view this case as an attempt to blame those ordinary market losses on this accounting decision when ... it had no material effect,” said lawyer Dan Tyukody.

Samueli and a company spokesman did not return calls seeking comment Monday afternoon.

Last year, the company called the federal lawsuit “frivolous” and denied any wrongdoing.

The latest lawsuit comes as the arts center is trying to raise $200 million for an expansion that will include a 2,000-seat symphony hall and a 500-seat theater. Fund-raising began in July 1999 for the symphony hall, which is slated to open in October 2005. The project is the first major expansion of the center since it opened in 1986.

The list of lawsuit plaintiffs contains several well-known names--most from Orange County, with others from Los Angeles and North Carolina.

Many are prominent in the overlapping worlds of business, philanthropy and politics. Many plaintiffs also made generous donations to the center. Several of those suing Broadcom are members of Republicans for a New Majority, a group of moderate Republicans that formed in 1999 to broaden participation in the party.

The plaintiffs include Raj and Martha Bhathal of Tustin, whose Raj Manufacturing produces Guess licensed swimwear; Benjamin Du of Newport Beach, president of pump manufacturer Flojet Corp., and his wife, Carmela; Robert J. Follman, president and CEO of RA Industries Inc., and his wife, Carole, of Coto de Caza; Thomas E. Tucker, president of Genstar Capitol, of Newport Beach; and attorney George J. Wall of Newport Beach and his wife, Nancy.

Larry Higby, chief executive of Apria Healthcare Group Inc. in Lake Forest, said his name was mistakenly added to the list of plaintiffs. He said he called lawyers to have his name removed.

“Frankly, my holdings were very small,” he said Monday. “If I were to start suing all the tech companies for stock losses I’ve suffered, Broadcom wouldn’t be at the top of the list.”

During the tech boom of the late 1990s, Broadcom wowed Wall Street as the industry’s fastest-growing chip maker. Its voracious appetite for strategic acquisitions, buying a dozen companies in 2000 alone, fueled its explosive growth.

But the Irvine company was criticized early last year after details surfaced in the press that its quick leap to $1 billion in sales may have come in part from some accounting methods involving five of the companies it bought.

Broadcom had arranged for those five companies to issue their customers special “warrants”--promises to sell them Broadcom stock at a discount--as encouragement for the customers to continue buying products.

News of the accounting method, and several lawsuits that followed, came as the industry was collapsing. Broadcom’s stock eventually fell to a low of $18.77 a share, a deep drop from the $200-and-above range of the stock at its peak. It has partly rebounded, closing Monday at $43.95 a share.

Tyukody, Broadcom’s attorney, said the company accounted for the warrants in a manner suggested by its accountants at Ernst & Young. It restated its third-quarter 2000 earnings and stopped using the accounting method for the warrants.

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Times staff writers Kimi Yoshino and Monte Morin contributed to this report.