Wednesday, June 4, 2008

Broadcom's Co-Founder Indicted on Federal Drug and Fraud Charges

Henry T. Nicholas III, the co-founder of Broadcom, was indicted on federal narcotics charges that he regularly maintained a supply of ecstasy, cocaine, methamphetamine and other controlled substances for use and distribution. Among other things, the narcotics indictment accuses Nicholas of using ecstasy to spike the drinks of industry executives and employees of Broadcom customers. According to the indictment, over a nine-year period, Nicholas maintained drug-involved premises, specifically homes in Laguna Hills and Newport Coast, a warehouse in Laguna Niguel and a condominium in Las Vegas. The indictment alleges that Nicholas used ecstasy to spike drinks at parties, and supplied prostitutes and escorts he had hired with controlled substances. The four charges in the narcotics indictment carry a statutory maximum penalty of 20 years in federal prison.

Nicholas and William Ruehle, the former chief financial officer of the Irvine-based technology company, also face charges of engaging in a stock-option backdating scheme that forced Broadcom to write-down $2.2 billion in profits. The indictment alleges that the fraudulent backdating of options by Nicholas and Ruehle was done to permit them to reward Broadcom employees, including Ruehle, with favorably priced options while avoiding the reporting of stock-based compensation expenses, which would have reduced Broadcom's earnings, making its stock less attractive to investors.

See also