Technology billionaire and philanthropist Henry Samueli pleaded guilty Monday to a felony charge of lying to regulators about his role in an alleged plot to secretly reward his Broadcom Corp. employees by manipulating stock options.
Under a deal with prosecutors, Samueli pleaded guilty in federal court in Santa Ana to making a false statement to the Securities and Exchange Commission. The government is recommending five years’ probation and $12.2 million in fines and penalties at sentencing, scheduled for Aug. 18.
Samueli, 53, who also owns the Anaheim Ducks National Hockey League team, becomes the most prominent executive convicted in the federal investigation of the manipulation of stock options. His guilty plea Monday spares him jail time but complicates the legacy of one of Southern California’s biggest philanthropists.
“There are people who come back from criminal convictions, but usually only after a long period of penance and full admission of responsibility,” said John Coffee, a Columbia University law professor and expert in white-collar crime. “But if he continues to give away a billion dollars in a thoughtful manner, I’m sure there are plenty of people out there who will forgive him.”
Born to survivors of Nazi Europe who arrived destitute in the United States, Samueli started off stocking the shelves of his family’s Los Angeles liquor store, launched a chip-making firm in his partner’s home and rode the 1990s tech boom to a multibillion-dollar fortune.
Along the way, he gained a reputation as a sober-minded scientist and a soft touch for good causes that included the arts, higher education, a Holocaust memorial library and a marine science institute for children.
Samueli, with a fortune estimated by Forbes magazine at just under $2 billion, can afford the fine, said Barry Slotnick, a white-collar defense attorney in New York. And by pleading guilty, Slotnick added, Samueli avoids an even greater threat to his name: jail time.
“At the end of the day Henry Samueli has a huge legacy and will be remembered not for his guilty plea but for his generosity to needy causes,” Slotnick said.
The statement that prosecutors focused on was made May 25, 2007, when Samueli denied under oath a role in making options grants to high-ranking executives.
“I was not involved in the actual granting process,” Samueli said.
That statement was false, Samueli said Monday, because in January 2002 he twice helped to decide the date on which options should be granted. In his plea, he admitted being part of the options-granting process but stopped short of acknowledging that the options awards were flawed.
Stock options are rights to buy shares at a set price at a future date. If the stock price goes up, recipients make money. Irvine-based Broadcom, like many other technology companies, backdated the grant dates to take advantage of dates when the stock price was low, so that the options were already “in the money” when they were awarded.
During the tech boom, Samueli and Broadcom co-founder Henry T. Nicholas III awarded millions of stock options to attract and reward employees. Samueli and Nicholas didn’t receive backdated options themselves, but prosecutors alleged they granted them to others, including some other top executives, to avoid having to report $2.2 billion in compensation costs to shareholders.
Last month, the SEC filed a civil suit against Samueli and Nicholas, leading Samueli to step aside as chairman and chief technical officer of Broadcom, which makes chips used in a variety of products, including Apple iPhones and Nintendo Wii game consoles. The SEC is also seeking to bar Samueli from serving as an officer of a public company, though Broadcom said in a statement that the plea agreement, if approved at sentencing, would allow Samueli to remain as a technical advisor.
A federal grand jury indicted Nicholas this month on 25 counts of backdating stock options, distributing drugs to associates and spiking the drinks of Broadcom customers. He has pleaded not guilty and faces the possibility of lengthy prison time if convicted.
Samueli’s plea agreement does not require him to cooperate with or testify for the government. Legal experts said it would be problematic for prosecutors to call a witness who had admitted to lying to the SEC. Even so, U.S. District Judge Cormac J. Carney suggested Samueli might wind up on the stand -- for the defense.
“I don’t think I have to be a rocket scientist to think Dr. Nicholas is going to call him,” Carney said.
Samueli’s attorney, Gordon Greenberg of Los Angeles, said he was aware that might occur. He acknowledged that if Nicholas called Samueli to the stand, Carney might rule that Samueli had waived any right not to testify on grounds he might incriminate himself.
Samueli’s guilty plea Monday did not have any immediate bearing on his ownership of the Ducks, the team he purchased in 2005, or Anaheim Arena Management, which operates Honda Center.
“The Ducks and Anaheim Arena Management will not be commenting on this matter, except to say that today’s events will not affect Henry Samueli’s role with the team or arena,” Ducks CEO Michael Schulman said.
According to NHL bylaws, the league can assume control of a club whose owner is convicted of a crime. It has happened as recently as 2002 when John Rigas, facing fraud charges involving his family’s firm, Adelphia Corp., was forced to relinquish his ownership of the Buffalo Sabres.
AEG Chief Executive Tim Leiweke, whose company owns the NHL’s Los Angeles Kings, voiced support for Samueli.
“Although this is a difficult time for Henry and his family, I believe he will come through this and continue to be a great partner and an important part of the sports and entertainment scene in Southern California,” Leiweke said.
At Broadcom, Samueli’s quiet personal manner contrasted sharply with that of his partner. Samueli had a reputation as a straight-arrow family man, and as an encouraging father figure to his engineers. Nicholas was known as a brash, hard-driving deal maker who did not shy from browbeating his staff to get results.
Samueli’s parents, Sala and Aron, were Polish immigrants who survived Nazi Europe and arrived in the United States with almost nothing.
In 1991, Samueli co-founded Broadcom with Nicholas, his former engineering student at UCLA. They each threw in $5,000 and worked out of Nicholas’ Redondo Beach home, moving to Irvine four years later and taking the firm public three years after that.
Samueli has cut a singular figure in the world of Orange County philanthropy. His name adorns the engineering school at UC Irvine (as well as the one at UCLA) and a 500-seat performing arts theater in the county’s arts district. His gifts, which now exceed $200 million, have placed him at the vanguard of a growing generation of tech-wealth donors in a county once ruled by real estate fortunes.
Samueli’s donation launched the Sala and Aron Samueli Holocaust Memorial Library at Chapman University, which was dedicated in 2005. Speaking at the dedication, Samueli said that he got his best qualities from his parents.
“There was not a dry eye in the room,” said Mike Lefkowitz, a longtime friend of Samueli and Samueli’s wife, Susan, and former head of their charity foundation. “His parents, as my parents, were Holocaust survivors. When you come through something like that you want to be generous, you want to give back, you want to be thankful for having survived.”
James Doti, Chapman University’s president, recently recalled Samueli’s remarks at the library’s dedication.
“After we acknowledged him and Susan for the gift, he pointed to me in his remarks and said, ‘I know your mother passed away. For you to be here means a great deal to me.’ He personalized it. He knew what I was feeling at the time,” Doti said.
Allen Krause, rabbi of Temple Beth El in Aliso Viejo, which Samueli occasionally attends, said Samueli and his wife had “lifted the level of philanthropy in this county geometrically.”
“In the Jewish community, they created a golden age of philanthropy here, because they pushed the bar higher than it had ever been before,” he said.
Columbia University’s Coffee noted that it was common for white-collar defendants to be charged not for what they originally did but for their actions afterward. That happened with Samueli.
“Most of these high-powered people who rise to that level of stature have perfected their ability to talk their way out of problems,” Coffee said. “That’s a fatal mistake when you’re dealing with the government. You’ve got to shut up.”
Times staff writers David Reyes, Eric Stephens and Helene Elliott contributed to this report.--
(BEGIN TEXT OF INFOBOX)
Age: 53 (born Sept. 20, 1954, Buffalo, N.Y.)
Family: Wife Susan and three daughters
Education: Fairfax High School in Los Angeles; bachelor’s, master’s degrees and PhD in electrical engineering from UCLA.
1980-85: Worked as engineer at TRW Inc. and taught classes at UCLA part time as a visiting lecturer
1985-95: Full-time professorship at UCLA
1991: Co-founds Broadcom with Henry T. Nicholas III, his former engineering student at UCLA
1995: Takes leave from UCLA, moves to Orange County
1998: Broadcom goes public.
January 2003: Nicholas steps down as CEO.
2005: Purchases the Anaheim Ducks National Hockey League team
2007: Federal authorities force Broadcom to fix its books by recording $2.2 billion in unreported expenses related to options backdating.
May 14, 2008: The Securities and Exchange Commission accuses Samueli and Nicholas of backdating employee stock options from 1998 to 2008. Samueli steps down as chairman of Broadcom.
June 23, 2008: Samueli pleads guilty to lying to federal regulators.
Source: Times research