Former BRCM CEO in a shitload of trouble.

Discussion in 'Wall St. News' started by Red_Ink_inc, Jun 5, 2008.

  1. This guy is in a crapload of trouble ....... one paragraph from the article found below. ...... One suit was filed by Nicholas' former bodyguard and personal assistant, Kenji Kato, and the second by a construction crew that claimed they were hired to build an underground lair for Nicholas where he could indulge in sex with prostitutes and drug use.


    Broadcom co-founder faces drug, securities charges
    Thursday June 5, 6:03 pm ET
    By Gillian Flaccus, Associated Press Writer
    Broadcom co-founder Henry Nicholas indicted on drug charges, securities fraud

    SANTA ANA, Calif. (AP) -- Broadcom Corp. co-founder Henry T. Nicholas III was in custody Thursday on charges that he slipped ecstasy into the drinks of technology executives, maintained a warehouse to store cocaine and tried to conceal his illegal conduct with bribes and death threats.

    The billionaire also is accused of committing conspiracy, securities fraud and other violations while he led the Irvine-based computer chip company.

    A pair of indictments unsealed Thursday, one addressing the drug charges and the other allegations related to improper handling of backdated stock options, paint a bizarre picture. A successful entrepreneur, Nicholas is accused of using much of his fortune to fund drug parties in airplanes and luxury homes and to build a secret tunnel and room beneath his mansion in Laguna Hills.

    Much of that allegedly happened at the same time as the alleged backdating scheme, which forced Broadcom to write down its profits by $2.2 billion in January 2007. That is believed to be the largest-ever accounting restatement related to improperly accounting for backdated options.

    Broadcom's former chief financial officer, William J. Ruehle, also was named in the backdating indictment and faces conspiracy, securities fraud and other charges. He is not charged with drug violations.

    "It is critical to maintain the transparency of our financial markets, something that these defendants allegedly attempted to manipulate through the scheme, which created a false picture of Broadcom's finances," U.S. Attorney Thomas P. O'Brien said in a statement.

    Nicholas, 48, turned himself in to the FBI on Thursday, said Thom Mrozek, spokesman for the U.S. attorney.

    Nicholas and Ruehle, 66, were scheduled to make their first court appearances later in the day.

    Attorney Brendan V. Sullivan Jr., who represents Nicholas, declined to comment.

    Ruehle's attorney, Richard Marmaro, said in a statement, "Bill Ruehle is innocent of the charges in the indictment, and he looks forward to the opportunity to clear his good name in a court of law."

    Broadcom, which makes microchips for cell phones and broadband Internet devices, reported a strong first-quarter profit in April and forecast second-quarter sales of $1.08 billion to $1.13 billion, ahead of Wall Street expectations.

    The 18-page indictment on drug charges alleges that Nicholas kept four properties in Orange County and Las Vegas, including a warehouse in Laguna Niguel, Calif., where he stashed and distributed cocaine, methamphetamine and ecstasy.

    He later remodeled the warehouse with private rooms and furnished it with art and high-end electronics.

    The court documents also claim Nicholas hired prostitutes and escorts for himself, his employees and customers and conspired to get illegal prescriptions for drugs such as Valium.

    In 2001, Nicholas smoked so much marijuana during a flight on a private jet between Orange County and Las Vegas that the pilot had to put on an oxygen mask, the indictment states.

    Nicholas also required his unnamed coconspirators to provide detailed invoices for drugs they sold to him, and used code names such as "party favors" and "refreshments" to conceal what was being sold, prosecutors alleged.

    The allegations recall two earlier civil lawsuits filed against Nicholas that accused him of rampant drug use and hiring prostitutes. Both lawsuits were cited by prosecutors in a motion filed Thursday that sought to deny bail for Nicholas.

    One suit was filed by Nicholas' former bodyguard and personal assistant, Kenji Kato, and the second by a construction crew that claimed they were hired to build an underground lair for Nicholas where he could indulge in sex with prostitutes and drug use.

    The workers claimed Nicholas failed to pay them millions of dollars and used intimidation and death threats to prevent them from leaving the project, which was kept secret from Nicholas' wife and city inspectors.

    Nicholas faces a total of 21 counts in both federal indictments filed this week, while Ruehle faces 21 counts in the stock options indictment.

    Ruehle allegedly filed false statements with the U.S. Securities and Exchange Commission, falsely certified financial reports and committed wire fraud.

    Backdating stock options, which often are granted as hiring and retention incentives, is legal. Companies across the company have run into trouble when they failed to account for the true cost that the backdating created because omitting that cost sometimes inflated the companies' income.

    The drug charges against Nicholas carry a maximum combined sentence of 20 years in prison. He could face up to 340 years in prison on the stock backdating charges.

    Ruehle could face up to 370 years if convicted of all the charges against him.

    Last month, securities regulators cited Nicholas, Broadcom co-founder Henry Samueli and Ruehle in a civil suit alleging they falsified the company's reported income. The SEC also cited Broadcom general counsel David Dull, but Dull and Samueli were not named in Thursday's criminal indictments.

    Nicholas served as CEO and president from Broadcom's inception in 1991 until he resigned in 2003.

    Ruehle joined the company in 1997 as vice president and chief financial officer and retired in 2006.

    Samueli, Nicholas' one-time Ph.D. adviser, stepped down as chairman of the company's board of directors after the SEC action last month.

    Shares rose 65 cents, or 2.3 percent, to $28.75 on Thursday, amid a general upswing in the stock market. Its 52-week trading range was between $16.38 and $43.07.