Broadcom co-founder Nicholas indicted on drug, fraud, conspiracy charges

Henry T Nicholas faces allegations that he used ecstasy to spike the drinks of industry executives, maintained a drug warehouse, and supplied prostitutes he hired with drugs.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 6/5/2008

Henry T Nicholas III, a co-founder and former CEO of Broadcom Corp, was indicted today on fraud, conspiracy, and narcotics charges, including allegations that he used ecstasy to spike the drinks of industry executives and employees of Broadcom customers.

The indictment returned Wednesday by a federal grand jury alleges that Nicholas, 48, regularly maintained a supply of ecstasy, cocaine, methamphetamine, and other illegal drugs for use and distribution.

The narcotics indictment was unsealed this morning after Nicholas surrendered to special agents with the Federal Bureau of Investigation (FBI).

According to the indictment, over a nine-year period, the ex-Broadcom executive (pictured left) maintained drug-involved homes in Laguna Hills and Newport Coast, Calif, a warehouse in Laguna Niguel, Calif, and a condominium in Las Vegas, where he obtained and distributed ecstasy, cocaine, and methamphetamine.

Nicholas, who started Broadcom with Henry Samueli in 1991 and resigned as president and CEO in 2003, allegedly used ecstasy to spike drinks at parties, and supplied prostitutes and escorts he had hired with controlled substances, according to the indictment.

The indictment further claims that in one specific incident of drug distribution, Nicholas and others smoked “extensive amounts” of marijuana during a private flight between Orange County, Calif, and Las Vegas, causing the smoke to enter the cockpit and requiring the pilot to put on an oxygen mask.

The four charges in the narcotics indictment carry a statutory maximum penalty of 20 years in federal prison, according to the FBI. The narcotics case is being prosecuted by Assistant United States Attorney Kenneth B Julian.

Separate stock-option backdating indictment

Nicholas also faces fraud and conspiracy charges in a separate indictment in which he and William Ruehle, ex-CFO of  the Irvine-based wireless chip maker, have been charged with engaging in a stock-option backdating scheme that forced Broadcom to write-down $2.2 billion in profits.

The allegations are similar to those made last month by the Securities and Exchange Commission (SEC), which filed a civil action against Nicholas, Ruehle, Samueli, and Broadcom General Counsel David Dull for their for their alleged participation in a “five-year systematic scheme to secretly backdate stock options granted to virtually all Broadcom officers and employees.” Samueli resigned his seat as chairman on the SEC action.

The 21-count indictment alleges Nicholas and Ruehle, 66, among others, “engaged in a scheme from 1999 to 2005 to fraudulently backdate millions of stock-option grants, fail to record stock-based compensation expenses, and falsify documents to further the fraud,” according to the FBI.

As a result of stock-option backdating, Broadcom restated its financial results in January 2007 and reported more than $2.2 billion in additional compensation expenses. Prior to that, Ruehle resigned on Broadcom's stock-option scandal in September 2006, nine years after taking the company's CFO seat.

The 65-page indictment in the stock-option backdating case charges Nicholas and Ruehle with conspiracy, securities fraud, false certification of financial reports, false statements in reports filed with the SEC, lying to accountants, falsification of corporate books and records, and honest services mail and wire fraud.

The combined charges result in a maximum possible sentence of 340 years for Nicholas and 370 years for Ruehle.

The backdating indictment naming Nicholas and Ruehle was also unsealed this morning.

Broadcom did not return calls to Electronic News requesting comment by press time.