California Judges Dismisses Charges Against Broadcom Co-Founder

A federal judge on Thursday dismissed felony narcotics charges and two civil forfeiture cases against Broadcom Corp. co-founder and former CEO Henry T. Nicholas III, wiping the slate clean for a man who once faced the possibility of decades in prison.

Prosecutors requested the dismissal after U.S. District Judge Cormac J. Carney threw out a parallel securities fraud case against Nicholas and the chipmaker's former CFO six weeks ago and reprimanded prosecutors for alleged misconduct.

Carney admonished Nicholas for his apparent drug problem before dismissing the narcotics indictment.

"From the evidence ... as well as what's been attained from the pretrial services, it does seem that you had a serious drug problem," Carney said in court. "You paid dearly for that. You lost your marriage, you lost your job, your reputation has been tarnished, but from what I gather you've been clean and sober for two years and I commend you for that."

Federal prosecutors endured a public dressing-down when Carney threw out the high-profile securities fraud case against Nicholas. In the two civil cases, they sought to seize Nicholas' 1993 Gulfstream jet and properties in Las Vegas and Newport Beach. Prosecutors had alleged Nicholas stored and distributed ecstasy, cocaine and marijuana to friends and business associates from the properties and maintained a "drug warehouse" in Laguna Niguel.

The dismissals and a bid by another former Broadcom executive to wipe away her guilty plea could be a death knell for the government's headline-grabbing investigation into possible wrongdoing by Nicholas and other executives at the Irvine, Calif.-based company.

The U.S. attorney's office said it intends to appeal the dismissal of the securities case.

"As is the case in any criminal matter we pursue, we believed there was evidence to support convictions against all the defendants," said U.S. attorney's office spokesman Thom Mrozek.

Nicholas was not immediately available for comment.

The judge showed his displeasure with the government at a Dec. 15 hearing during which he lashed out at prosecutors for misconduct and a lack of evidence.

At the hearing, Carney dismissed stock-option backdating charges against Nicholas and former Broadcom Chief Financial officer William Ruehle just two days before a jury was to begin deliberating in Ruehle's trial. Carney decided to dismiss the charges after hearing evidence from Broadcom co-founder Henry Samueli, who testified for his former colleague Ruehle under a rare grant of immunity.

Samueli himself had earlier pleaded guilty to a single felony count of lying to Securities and Exchange Commission investigators — a plea that Carney also voided after hearing his testimony. Prosecutors said they will appeal that decision.

Samueli has resumed his role as Broadcom's chief technical officer since being cleared.

Carney said evidence in the securities case showed prosecutors tried to influence the testimony of three key witnesses, improperly contacted witnesses' attorneys and leaked information about grand jury proceedings to the media.

The judge then threw out the backdating case against Nicholas because he said Nicholas would need the same witnesses and could not receive a fair trial.

At the time, Carney also asked prosecutors to show why the narcotics case against Nicholas should not also be thrown out — and the government moved to drop the charges earlier this month.

Nicholas and Samueli started Broadcom in 1991 and took it public in 1998. The company grew to 7,000 employees worldwide and is a leading manufacturer for the chips used in everything from cable TV boxes to cell phones. It had nearly $5 billion in revenue last year.

Backdating involves retroactively setting a stock option's exercise price to a low point in the stock's value, boosting profits when the shares are sold. It is legal when properly accounted for, but if not properly disclosed it can allow companies to overstate profits and underpay taxes.

Broadcom was ultimately forced to write down $2.2 billion in profits after its actions were uncovered.