Nicholas
Defense attorneys for Broadcom Corp. co-founder Henry T. Nicholas III argued today that federal criminal charges alleging he conspired to conceal $2.2 billion in employee stock options should be dismissed because of misconduct by prosecutors, because the charges were vague and because Nicholas did not directly benefit from the purported crimes.
“There’s no allegation the defendant sought to obtain money or property from any alleged victim through fraud,” said Barry Simon, who represents Nicholas in the 21-count case.
U.S. District Court Judge Cormac J. Carney said he plans to rule on the dismissal motion in the next two weeks.
Nicholas, who served as Broadcom’s chief executive officer from its founding in 1991 until he quit in 2003, is charged with 21 counts of securities and accounting fraud. The charges stem from an investigation by the Irvine chipmaking company that concluded it improperly reported $2.2 billion in employee stock options. Also on trial with Nicholas is William J. Ruehle, Broadcom’s former chief financial officer. Both have pleaded not guilty.
Ruehle’s attorney, Richard Marmaro, argued that prosecutors used strong-arm tactics to coerce other Broadcom employees to testify against the defendants, including Broadcom co-founder Henry Samueli and the company’s former vice president of human resources, Nancy Tullos.
“The prosecutor actually tried to put his finger on the scales here and to coerce testimony that he believed would be better for him,” Marmaro said.
Both Tullos and Samueli are awaiting sentencing after having pleaded guilty to single criminal charges related to Broadcom’s stock options practices.
Stock options are the right to purchase a stock at a fixed price at a future date. Broadcom, like many tech companies during the dot-com boom of the late-90s, used stock as its primary form of employee compensation. The case against Nicholas and Ruehle alleges the company, under their direction, inflated the value of the options by backdating them to give employees a windfall. Backdating can be legal if accounted for properly in the company’s financial statements.
Marmaro also complained the prosecutors leaked secret grand jury information to the Wall Street Journal and Los Angeles Times, which prejudiced the case by juicing up the accounting and by spreading allegations about Nicholas’ use of drugs and prostitutes while he headed Broadcom.
Rather than offering detailed oral responses to the defense motion, prosecutors said they made their case in briefs submitted to the judge. Among their rebuttal arguments:
- Prosecutors sometimes have to play hardball to get witnesses to cooperate.
- Although Nicholas did not directly benefit from the alleged accounting violation, he was able to cash out $1 billion in stock during the period covered in the case. Ruehle earned millions from his stock.
- Alleged leaks in the case did not disclose secret grand jury information.
The trial is scheduled to begin in April. Nicholas has been charged in a separate case alleging he used and distributed illegal drugs. Carney has scheduled that trial to begin six months after the options case ends.
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