Broadcom’s CFO Departs Amid Inquiry
The chief financial officer at Broadcom Corp. on Tuesday became the latest corporate casualty in the federal government’s ongoing scrutiny of how stock options were granted at dozens of tech companies during the dot-com boom.
William J. Ruehle, hired in 1997 to take the chip maker public, “accelerated his retirement” in the wake of an internal investigation that has found unreported option-related expenses totaling $1.5 billion.
Those noncash expenses are the largest so far among any of the more than 100 companies under scrutiny by the Securities and Exchange Commission and cover options awarded to employees from 1998 to 2003.
Irvine-based Broadcom said the decision to leave was made by Ruehle, 64, but analysts saw the early departure as a defensive measure designed to give the company a clean slate when it announces final results of its internal review.
As companies complete their reviews, they want to say that no current executives or directors were involved in questionable transactions, said Michael D. Cohen, research director at Pacific American Securities in San Diego. “Part of the reason for the damage control is not only to give shareholders confidence but also to deflect further scrutiny from regulators.”
Tech companies are under scrutiny for manipulating the timing of option awards to maximize the potential upside. For instance, companies could grant options on days when the stock is depressed by bad news. In some cases, companies engaged in so-called backdating, or changing the date of an option grant retroactively to match dips in the share price.
In many cases, experts believe, nothing illegal was done, but the Justice Department is examining more than 45 companies. Two former executives of Brocade Communications Systems Inc. in San Jose have been charged with securities fraud.
Broadcom has said that directors and co-founders Henry T. Nicholas III and Henry Samueli received none of the stock options at issue. About 95% of the options were given to employees below the executive level.
Ruehle also received options, along with other top executives, but the company declined to say how many he was awarded.
Ruehle sold 45,000 shares in 1999 during a run-up in the company’s stock, grossing as much as $7.3 million. The stock’s price hit an all-time high of $182.41, on a split-adjusted basis, the following year. Last year, Ruehle received $405,000 in salary and bonus and $3.8 million from the sale of stock, according to an SEC document. As of February, he held 2.5 million Class A and Class B shares and options for 67,500 shares valued at $483,150.
Shares of Broadcom fell 46 cents Tuesday to $28.23. Ruehle’s departure was announced after the markets closed.
Controller Bruce E. Kiddoo will serve as acting chief financial officer while Broadcom searches for Ruehle’s successor.
Samueli, the company’s chairman, said Ruehle was the “first choice” to help the company go public and praised the Harvard MBA as a “true leader.”
One company executive, who did not want to be identified, said Ruehle had a reputation of being “strong and ethical.”
Industry analyst Rob Enderle of Enderle Group in San Jose railed against the upheaval that the backdating scandal is causing. Rules in place before 2003, he said, were not always clear. At most companies, he said, “folks just misinterpreted the rules.”
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Times staff writer Alana Semuels contributed to this report.
