When last we left Broadcom’s Securities and Exchange Commission (SEC) problems two months ago, (Broadcom’s Backdaters: The Trials of Many Tears) several former executives had pled guilty to a felony, settled with the SEC or were either on trial (former CFO William Ruehle) or awaiting trial (co-founder Henry Nicholas III). The Department of Justice was in high gear aggressively making its backdating options fraud case. All that changed recently when how the government made its case became the subject of the judge’s ruling.
U.S. District Judge Cormac Carney cited a lack of evidence and prosecutorial misconduct that undermined the integrity of the federal government’s case and acquitted former CFO William Ruehle of fraud charges. Judge Carney also dismissed with prejudice the fraud case against Broadcom co-founder Henry Nicholas III scheduled to begin trial in February. Several days before that ruling, Judge Carney had dismissed Broadcom co-founder Henry Samueli’s guilty plea for lying to the SEC, saying that Samueli had been evasive in questioning but hadn’t lied. The judge said the government had “distorted the truth finding process” in part by intimidation and influencing witnesses.
In dismissing the criminal charges against former Broadcom executives, the judge also dismissed the SEC’s civil case against them, giving the SEC 30 days to re-file an amended complaint if it chooses to do so.
Judge Carney singled out Assistant U.S. Attorney Andrew Stolper in his criticisms of the government’s conduct. The judge called the treatment of Samueli “shameful,” involving a campaign of intimidation, humiliation and misconduct to bring Samueli down. Carney referred to Samueli as “a brilliant engineer and man of incredible integrity.” Other areas of misconduct cited included the government leaking information to the media, interfering with an uncooperative witness’ new job which resulted in her being fired, pressuring Broadcom to fire Sameuli from his chairman role, and threatening to have a child testify against his father. Stolper’s actions are being investigated by the U.S. Department of Justice’s Office of Professional Responsibility.
Ruehle’s attorney claimed during the trial that rather than criminal activity, innocent accounting errors were made given the ambiguities around stock option accounting at that time. In his ruling, Judge Carney said the SEC failed to prove its case. The track record for convictions on options backdating hasn’t been a big success so far.
In the meantime, the SEC’s pursuit of Broadcom has had enormous financial and reputation consequences for the corporation and the employees investigated. Just last week, Broadcom settled a class action investor lawsuit for $160 million admitting no wrongdoing but wanting to have the company move forward. Ongoing media attention over the backdating scandal has dogged the chipmaker’s success in other areas.
Ruehle and Samueli, who had claimed to be vigilant about safeguarding their reputations for ethical dealings, saw themselves characterized as unethical liars in the SEC complaint. Nichols, an eccentric billionaire, who already had his reputation colored by a messy divorce filing that involved prostitutes and drug allegations, was a more vulnerable target for bad media – another compelling reminder that a leader’s private life becomes public in a scandal and skeletons inevitably undermine one’s other accomplishments.
Judge Carney did more than just give the government a black eye by his ruling. He called out behavior he said was unacceptable, shameful and unethical; he reasserted the line between the pursuit of justice and perversion of justice. The story now becomes not what Broadcom former executives did or didn’t do, but rather how will the government respond to charges of its own misconduct.
Gael O’Brien January 3, 2010