Suggesting that Broadcom Corp. co-founder Henry Samueli deserves to go to prison, a federal judge Monday rejected a deal with prosecutors that would have given the Orange County billionaire probation for lying to regulators about his role in an alleged $2.2-billion stock-option scam.
The government’s allegations against Samueli, “if true, warrant a significant prison sentence,” U.S. District Judge Cormac J. Carney wrote in an order delivered to Samueli, his attorneys and prosecutors at a hearing in Carney’s Santa Ana courtroom. Under the terms of the plea agreement, Carney could only accept or reject the recommended sentence, not modify it.
The judge took aim in particular at an unusual provision in the plea accord calling for Samueli to pay $12 million to the government. The maximum fine under the charge to which Samueli agreed to plead guilty is only $250,000.
“The court cannot accept a plea agreement that gives the impression that justice is for sale,” Carney wrote. Accepting the agreement, he added, would “erode the public’s trust in the fundamental fairness of our justice system.”
Assistant U.S. Atty. Robb Adkins, the head federal prosecutor in Santa Ana, told Carney that Samueli could be indicted if he didn’t agree to a new plea deal. Both sides asked for time to study Carney’s ruling and hold discussions. The judge gave them three weeks, and set a hearing for Sept. 29.
Adkins and Samueli defense attorney Gordon Greenberg declined to comment after the hearing.
Samueli, 53, of Corona del Mar has stepped down as chairman and chief technology officer of Broadcom, an Irvine designer of computer chips for mobile phones, Apple Inc.'s iPod and other communications products.
One of Southern California’s most prominent philanthropists, he is also the owner of hockey’s Anaheim Ducks. The National Hockey League has suspended him pending the outcome of the criminal case, and the University of California is studying whether his name should be removed from the engineering schools at UCLA and UC Irvine, where he has been a major donor.
The judge’s decision means that Samueli may now withdraw the guilty plea he entered in June to one felony count of making a false statement to the SEC. That charge carries a maximum prison term of five years, but under federal sentencing guidelines, probation would be considered appropriate for someone like Samueli with no prior record.
John C. Coffee, a Columbia University securities law professor, said it’s “extraordinarily” rare though not unprecedented for a federal judge to reject a prosecution deal with a defendant.
Calling Carney’s decision “well reasoned,” he noted that the judge, who is not a former prosecutor, seems more independent than many judges who have been prosecutors.
Although Carney, who was an All-American wide receiver at UCLA and played in the pro United States Football League before going to Harvard Law School, has been known to show sympathy for some defendants, he also has a reputation for coming down hard at times on defendants convicted of white-collar crimes.
In 2006, he sentenced money manager James P. Lewis Jr. to 30 years in prison for swindling 1,600 investors out of $156 million in a Ponzi scheme that the judge called a “crime against humanity.”
Of about 200 stock-option backdating cases that the Securities and Exchange Commission has reviewed, only a handful have landed in criminal court. One involved San Jose’s Brocade Communications Systems, whose former chief executive, Gregory Reyes, was sentenced to 21 months in prison and fined $15 million in January after being convicted of conspiracy and fraud. Reyes is free while appealing his conviction.
Samueli is a defendant in an SEC lawsuit that says Broadcom’s $2.2-billion understatement of compensation expense because of backdated options was the largest among a host of such cases the SEC looked into.
Stock options bestow the right to purchase shares in a company at a set price, generally the stock’s closing price on the day the options are granted. The higher the stock price goes after the options are granted, the more they are worth, motivating employees to strive for the company’s success.
The SEC suit contends that top Broadcom executives did not disclose that they backdated the options to days when the stock traded at low points, which had the effect of secretly rewarding employees by making the options more valuable.
In the parallel criminal case, Samueli is listed as an unindicted co-conspirator, mentioned 72 times in a federal indictment of Broadcom co-founder Henry T. Nicholas III, the company’s former CEO, and William Ruehle, its former chief financial officer.
Noting that Nicholas and Ruehle, if convicted, could theoretically be sentenced to more than 300 years each in prison, Carney added that people convicted in “run of the mill” frauds serve on average 17 months in prison. What’s more, he said, the U.S. Probation Office’s report on Samueli concluded that probation was insufficient and recommended a year in prison.
The judge also objected that the plea agreement did not require Samueli to cooperate with prosecutors or to testify at the trial of Nicholas and Ruehle. A fourth Broadcom executive, former personnel director Nancy Tullos, had such a cooperation provision in her agreement with the government when she pleaded guilty to obstruction of justice, noted Carney, who is to sentence Tullos on May 11.
The probation office’s recommendation for prison time makes Carney’s decision practically “appeal proof,” Coffee added.
Times staff writer Helene Elliott contributed to this report.