Now Hear This!

Jun 25 2008 8:53PM | Permalink | Email this | Comments (4) |
Blog This! using:  Blogger.com | LiveJournal |
Digg This | Slashdot This | add to Del.icio.us

The legal mess concerning Broadcom’s two co-founders took an interesting turn Tuesday when ex-CTO Henry Samueli entered a guilty plea and admitted to making materially false statements to the SEC (Securities and Exchange Commission) in the company’s criminal stock-option backdating case.

To be sure, he has not admitted participation in any stock-option backdating that went on at Broadcom and odds are he won’t. Instead, Samueli admitted to lying during a May 25, 2007 SEC deposition when he claimed to not have been involved in the process of granting options to Broadcom’s Section 16 officers. Proof that he was involved came through a January 2002 e-mail where Samueli advises former Broadcom VP of HR Nancy Tullos to backdate a grant.

Samueli’s drama is playing out much differently than that of Henry T Nicholas III, his fellow Broadcom co-founder. Samueli walked out of the court house hand in hand with his wife, Susan. Nicholas’ wife filed for divorce sometime ago. Samueli’s record is pretty much clean other than his stock-option involvement. Nicholas faces a separate indictment on drug use and distribution charges. Samueli pleaded guilty to the obstruction charge and will most likely avoid jail time, while Nicholas has said he was not involved in the backdating and is taking his chance on a jury.

Samueli's plea agreement doesn't require him to cooperate with the government in its investigation of Broadcom’s stock-options backdating, but it’s near certain he’ll be called to testify at the trial of Nicholas and former Broadcom CFO Bill Ruehle, who is also claiming innocence after being indicted earlier this month with Nicholas for his alleged role in the backdating and securities fraud.

“The government’s position always is whoever comes in first is going to get the best deal because they need to make as strong a case as they can with co-conspirators against the main targets,” Rebekah Poston, a former DOJ attorney and now a top Florida white collar crime defense attorney with Miami-based law firm Squire, Sanders & Dempsey, told Electronic News.

“You just can’t understand why they do it,” she continued, remarking on the two former engineers. “They go in under investigation and they lie. It’s easier to make a case on the obstruction than the subsequent counts.”

With the guilty plea, Samueli is expected to face more than $12.2 million in penalties and up to five years probation, assuming US District Judge Cormac Carney agrees that’s enough at Samueli’s sentencing trial on August 18. What the plea does not provide is immunity should he be called to testify at the trials of Nicholas and Ruehle or against any perjury he commits while testifying.

If Samueli and his legal team are smart, he’ll willingly take the stand when called to avoid further incrimination when facing the numerous other charges already presented (or to be presented) against Broadcom’s backdating activity. His loyalty to Nicholas doesn’t seem to be an issue, as he pointed the finger directly at his ex-partner in the 2007 SEC deposition. Still, according to Poston, the defense won’t make it easy for Samueli if he does testify.

“If he gets on the witness stand to testify they are going to cut him to ribbons. ‘Oh, you cut a sweetheart deal. Isn’t it a fact that you aren’t going to jail.’ The defense will always attack the creditability of the informant and show that he is biased and prejudice because he cut himself a deal early and will benefit from saying things that hurt them. But if the jurors see him as someone who confesses to what he did on the stand and is already on the way to paying his penalty, then he is going to look a lot more creditable,” she said.

Given the e-mail evidence presented in Samueli’s plea agreement, Poston said she would have recommended he take the deal. “With a jury, you don’t know. You minimize the exposure by pleading to one count – a false statement count, not to backdating. He’s looking at probation, no prison time, and he’s free. He’s got control over his life and what it’s going to be. In all likelihood, the court is going to accept it,” she said.

“They have him under oath in a deposition saying one thing, and then they had documentary evidence where he said exactly the opposite. It’s in black and white,” she continued.

Broadcom did not reply to an e-mail sent by Electronic News last night looking for comment on its two co-founders or on how it has cleaned up its stock process.

So what’s next for the company? Its reputation is permanently tarnished. Stockholders have been lied to and suits are sure to follow. And its two founders are gone, leaving Scott McGregor to clean up the mess.

McGregor, who has not been accused or charged in any of the Broadcom backdating, joined the company in 2005 after Alan “Lanny” Ross gave up the CEO seat. It’ll be up to him and the remaining Broadcom execs to steer the company through this. McGregor’s smart. He has vision and handles himself well under pressure. (See this 2007 Mover & Shaker executive profile on McGregor for more, “Making all the right connections.”) But he and crew are in for a heck of a fight.

“It’s not to say that a company can’t survive it, but you can be sure it will be fighting its way back upstream as a result. That’s inevitable,” Poston concluded.

What do you think? Share your thoughts on Broadcom’s future and the plea below. 

--Suzanne Deffree, Managing Editor, News