June 05, 2008, 8:59 PM — Broadcom co-founder Henry Nicholas on Thursday was indicted for possession and distribution of drugs and on charges of backdating stock options that caused the technology company to write-down US$2.2 billion in profits.
For over nine years, Nicholas maintained a warehouse where he stored drugs including ecstasy, methamphetamine and cocaine, the indictment alleged. Nicholas put ecstasy in the drinks of industry executives and Broadcom clients, and supplied prostitutes and escorts he had hired with drugs, according to court documents.
The indictment alleges Nicholas and others smoked "extensive amounts of marijuana during a flight on a private plane between Orange County and Las Vegas, causing marijuana smoke to enter the cockpit and requiring the pilot to put on an oxygen mask."
Nicholas and former Broadcom Chief Financial Officer William Ruehle were also indicted for engaging in stock-option backdating between 1999 and 2005 and falsifying corporate books and records.
Nicholas and Ruehle were allegedly involved in schemes to give employees the option to buy stock set at a future price without recognizing its fair value, according to the indictment. The stock grant dates were selected to coincide with the low points of Broadcom's stock price.
The indictment also alleged that false statements were filed with the U.S. Securities and Exchange Commission through 2005 about Broadcom's stock option grants.
The fraud resulted in the largest financial restatement related to options backdating in U.S. history, with Broadcom adding more than $2.2 billion in additional compensation to its financial results in January 2007, according to the U.S. Department of Justice.
Nancy Tullos, Broadcom's former vice president of human resources, who is named in the securities fraud indictment, pleaded guilty in November to one count of obstruction of justice in connection with an earlier investigation into stock-options backdating at Broadcom by the DOJ.
Nicholas was the co-founder of Broadcom in 1998, and he served as CEO and co-chairman on the company's board of directors until May 2003.
