Federal prosecutors drop narcotics case against Broadcom co-founder Henry T. Nicholas III

Feds drop drug case against Broadcom co-founder

SANTA ANA, Calif. — Federal prosecutors moved Thursday to drop narcotics charges against Broadcom Corp. co-founder and former CEO Henry T. Nicholas III but intend to appeal a judge’s dismissal of a wide-ranging securities fraud case against him.

Prosecutors said they will also appeal an order from U.S. District Judge Cormac J. Carney that set aside a guilty plea by Broadcom co-founder and chief technical officer Henry Samueli to a single count of lying to Securities and Exchange Commission investigators.

The moves come less than a month after the judge dismissed all charges against Nicholas and former chief financial officer William Ruehle in a massive stock options backdating case against chip-maker Broadcom, citing what he called “shameful” prosecutorial misconduct and a lack of evidence.

The dismissals were a stunning reversal for the two men, who had faced the prospect of years in prison for their alleged crimes.

At the time, Carney also ordered the government to explain why a parallel narcotics indictment against Nicholas should proceed. That indictment included allegations that Nicholas slipped ecstasy into the drinks of business associates, maintained a drug warehouse and concealed illegal conduct with bribes and death threats.

A hearing on that issue had been set for Feb. 2.

In their filing, the government noted that it did not agree with Carney on the securities case, but decided to drop the narcotics charges because of his previous findings.

Carney must still approve the government’s motion to dismiss the narcotics case, said Thom Mrozek, spokesman for the U.S. attorney’s office.

Nicholas declined to comment on the developments.

Carney found last month that evidence in the securities case shows prosecutors tried to influence the testimony of three key witnesses, improperly contacted witnesses’ attorneys and leaked information about grand jury proceedings to the media.

The judge said Nicholas would need the same witnesses to try to prove his own innocence and therefore could not receive a fair trial.

Nicholas and Henry Samueli started Broadcom in 1991 and took it public in 1998. The Irvine, Calif., company grew to 7,000 employees worldwide and is a leading manufacturer for the chips used in everything from cable boxes to cell phones. It had nearly $5 billion in revenue last year.

Backdating involves retroactively setting a stock option’s exercise price to a low point in the stock’s value, boosting profits when the shares are sold. It is legal when properly accounted for, but if not properly disclosed it can allow companies to overstate profits and underpay taxes.

Broadcom was ultimately forced to write down $2.2 billion in profits after its actions were uncovered.

Samueli, the company’s chairman, pleaded guilty in 2008 to a single count of lying to SEC investigators, but Carney exonerated him last month after hearing him testify for ex-CFO Ruehle under a grant of immunity.