Charges could link to Broadcom probe
Federal prosecutors filed criminal charges Wednesday against a key advisor to Henry T. Nicholas III, the flamboyant co-founder and former chief executive of Irvine’s Broadcom Corp.
The felony charge against lawyer Craig Steven Gunther of Aliso Viejo comes amid a federal investigation into possible backdating of stock options by Nicholas and Broadcom, which makes computer chips.
But it doesn’t allege any backdating, accuse the company of anything or even mention Nicholas by name.
Instead, the U.S. attorney’s office in Santa Ana accused Gunther -- who had managed Nicholas’ personal finances for nearly six years -- of violating federal banking laws by failing to fill out forms required when withdrawing more than $10,000 in cash. Gunther withdrew more than $500,000 altogether in large chunks just under the $10,000 limit, according to the affidavit by FBI Agent Paul Bonin.
The government tracks transactions over $10,000 as part of an effort to halt money laundering by organized crime.
Gunther could not be reached for comment. But citing interviews with several former employees who received immunity in exchange for their cooperation, the 22-page affidavit said the money was for the petty cash needs of Nicholas and his estranged wife.
John Early, a former federal prosecutor now in private practice in Irvine, said, “This signals more investigation and more indictments coming down the road. Oftentimes, prosecutors start with small fish and work their way up to the big fish.”
Until recently, Nicholas, 47, was one of the tech boom’s biggest winners. Broadcom’s success made him one of the nation’s richest men, and he has given millions to schools, the Orange County Performing Arts Center and other causes.
But since stepping down as CEO in 2003, Nicholas has been battered by a raft of legal troubles, including the stock-options probe, allegations of drug abuse, an acrimonious divorce and a claim that he once sought to build a sex lair beneath a Laguna Hills mansion. He is being sued by a former employee who claims Nicholas and his companies owe him $150,000 in unpaid wages.
Nicholas has denied any wrongdoing and says through his attorney that some of his accusers are simply trying to extort money from him.
Gunther served as chief operating officer of Nicholas’ main investing arm, NS Holdings in Aliso Viejo, until resigning in June. Robert Magnuson, a former Los Angeles Times business editor and corporate executive and spokesman for Nicholas, has replaced Gunther.
Magnuson said the charge involved “technical violations” of banking laws. “We have complete confidence in Craig’s integrity and believe he will be exonerated,” he said.
Federal prosecutors looking into possible wrongdoing in the Broadcom backdating matter declined to comment.
Prosecutors sometimes file charges or threaten to file charges against lesser players in an investigation in hopes of cutting a plea bargain in exchange for help in trying to corral the chief target.
But lawyers and industry experts weren’t sure how much Gunther could help prosecutors pursuing backdating claims. The charge doesn’t relate to backdating. More important, they said, prosecutors could run into a wall if Gunther was a legal advisor to Nicholas because his conversations would be protected by the attorney-client privilege.
Even so, Gunther still might be able to shed light on any involvement Nicholas had in backdating stock options, experts said. And with the complaint, Gunther now will face pressure from investigators, they said.
“Once you’re under the scope of an investigation, the investigators are not necessarily limited to the initial focus,” Early said. “Good prosecutors and FBI agents will take it wherever it goes.”
Regulators and prosecutors are stepping up their pursuit of not only the beneficiaries of financial wrongdoing but also the lawyers and other professionals representing them, said James J. Maloney, an Irvine lawyer following the Broadcom matter.
“They are viewed as watchdogs who should have known better,” he said.
Prosecutors have 20 days to obtain a grand jury indictment to supersede the criminal complaint, assuming Gunther does not consent to go to court. He faces a maximum of five years in prison if convicted.
The complaint against Gunther does not mention Nicholas by name. But it does refer to an “Executive A,” which sources said was Nicholas. In portions, it offers glimpses of erratic behavior by Executive A.
Former personal assistant Elizabeth Kuhns, for instance, told the FBI that in late 2001 and early 2002, Executive A began to “disappear for periods of time and miss important meetings.”
She said she also would receive “incoherent calls” in which he would “speak nonsense.” She quit in May 2002, saying he was intolerable to work for because of his erratic behavior.
Magnuson said he could not comment on the affidavit.
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