New court victory for Broadcom co-founder Henry Nicholas as drug charges are dropped
Launched amid titillating allegations of drug abuse, illicit sex and ill-gotten gains, the federal government’s prosecution of Broadcom Corp. executives came to a whimpering conclusion Thursday when a judge threw out the remaining charges against company co-founder Henry T. Nicholas III.
U.S. District Judge Cormac J. Carney granted prosecutors’ request to dismiss drug distribution charges against Nicholas -- six weeks after he dismissed criminal charges related to stock-option backdating against Nicholas and Broadcom co-founder Henry Samueli.
The judge dismissed civil lawsuits in which federal authorities had sought to seize Nicholas’ private jet and a Las Vegas home.
Carney also threw out the guilty plea of former Broadcom executive Nancy Tullos, who had been charged in the criminal backdating investigation.
Nicholas was indicted two years ago on charges that he had provided cocaine and Ecstasy to friends and business associates. The indictment alleged that Nicholas installed “a secret and convenient lair” at his home in Laguna Hills to indulge his obsession with prostitutes.
Also alleged in the indictment was a rowdy flight to Las Vegas in which Nicholas’ pilot needed to use an oxygen mask because marijuana smoke was clouding the cockpit.
In a separate, less-scandalous indictment, prosecutors accused Nicholas of backdating Broadcom stock options to make them more valuable to prized employees of the Irvine chip maker without accounting for the practice in regulatory filings.
Samueli had pleaded guilty in late 2008 to a charge of lying to regulators about the company’s options practices. In December, Carney withdrew Samueli’s guilty plea and dismissed the case against him, Nicholas and William J. Ruehle, the company’s former chief financial officer.
The judge found that prosecutors had engaged in misconduct by, among other things, intimidating witnesses. After hearing Samueli’s testimony in Ruehle’s separate trial, Carney also decided that the government hadn’t proved its case and noted that options laws were so confusing that dozens of companies made the same mistakes.
In granting prosecutors’ request to dismiss the drug case, Carney said he believed the evidence showed that Nicholas had a prior drug problem that had destroyed his marriage, but that prosecutors were justified in not pursuing criminal drug charges.
The judge had said previously that the same defects in the backdating prosecution could be a problem in the narcotics case, and prosecutors cited his comments as a reason for dismissing the drug case.
A jubilant Nicholas told reporters after the hearing that Carney’s actions had helped him close a difficult chapter in his life.
“I have long held a deep and abiding faith in the American justice system. That faith was admittedly tested, but ultimately reaffirmed by Judge Carney’s dismissal of the stock-options case and the government’s decision not to pursue the narcotics case,” the billionaire said.
Prosecutors from the U.S. attorney’s office have said they intend to appeal Carney’s prior dismissal of the options-related charges against Nicholas and Samueli.
“We believe there was evidence to support convictions for all the defendants,” said Thom Mrozek, a spokesman for the U.S. attorney’s office in Los Angeles.
The criminal charges against Samueli, Nicholas and other executives had marred the reputation of a company they launched together in 1991 and turned into a multibillion-dollar technology empire.
Broadcom, which recorded nearly $5 billion in sales in 2008, designs chips used in a variety of electronic devices, including iPhones and Bluetooth headsets.
Broadcom was one of dozens of tech companies targeted during a federal crackdown on stock option grants. Options are rights to buy stock at a set price, usually on the day they are granted. If the stock price rises, employees can buy shares at the grant price and sell them at the higher price for a profit.
Companies are allowed to backdate option grants to a date when the price was lower as long as they account for it in filings with the Securities and Exchange Commission. Prosecutors alleged that Broadcom executives backdated options and failed to make the required disclosures.
During the tech boom, options were used to recruit and retain highly skilled engineers that were essential to a company’s success. In 2007, amid an SEC investigation, Broadcom restated its financial results to account for nearly $2.2 billion in options expenses.
Nicholas said the legal challenges that he and other executives faced did not diminish the pride he felt for the company he built with Samueli, his former professor at UCLA.
“We changed the way people communicate,” he said. “We changed everything.”
Ruehle said he believed that prosecutors targeted Broadcom because of its success and the colorful personality of Nicholas, the company’s 6-foot-6 former chief executive.
“Broadcom was a big target. Nick is a larger-than-life personality,” Ruehle said. “But in the end they didn’t have a case.”