On November 30, 2007, following a lengthy grand jury investigation of Broadcom, Corp., a multi-billion dollar semiconductor company in Orange County, California, Nancy Tullos, former Broadcom human resources director, was charged with participating in an alleged stock options back-dating scheme and agreed to testify for federal prosecutors.
On January 24, 2008, Tullos pled guilty to one count of obstruction of justice in U.S. District Court for the Southern District of California. According to the plea agreement, Tullos was involved setting up the employment contract for a prospective employee and sent and received emails regarding the employee’s date of hire. She admitted that she directed that an email that she sent be deleted because it showed that the date that was listed as the start of the employee’s employment at Broadcom was false. The listed date was selected so that the new employee’s compensation from stock options would be increased.
Several months later, on June 4, 2008, Henry Nicholas, co-founder of Broadcom, and former Broadcom chief financial officer William Ruehle were indicted by a federal grand jury in Santa Ana, California, for conspiring to illegally back-date stock options to reward themselves and employees.
On June 20, 2008, federal prosecutors charged Henry Samueli, 43, who co-founded Broadcom with Nicholas, with making a false statement to the U.S. Securities and Exchange Commission, which had conducted an investigation of stock option back-dating at Broadcom.
Samueli was accused of testifying falsely under oath before the SEC when he said he had not been involved in granting of stock options. Federal prosecutors charged that he had in fact been involved in the process.
Three days later, on June 23, Samueli, a billionaire philanthropist and owner of the Anaheim Ducks National Hockey League franchise, pled guilty as part of a plea agreement that called for five years probation, a fine of $250,000 (the legal maximum) and a $12 million penalty
U.S. District Judge Cormac Carney accepted the guilty plea, conditional on the judge’s approval of the plea agreement, and set sentencing for Aug. 18, 2008.
The sentencing date was postponed and then, on September 8, 2008, Judge Carney rejected the terms of the plea agreement. The judge said that it “would erode the public’s perception of our justice to accept a plea agreement containing an unprecedented payment of $12 million to resolve the criminal liability of one of four co-conspirators in an alleged $2.2 billion securities fraud.”
Samueli appealed the order, but the U.S. Court of Appeals for the Ninth Circuit dismissed the appeal for lack of jurisdiction on September 24, 2009.
Since the plea bargain was rejected by Judge Carney, Samueli could have withdrawn his guilty plea and gone to trial—or negotiated a new plea bargain. Instead he let his guilty plea stand, which meant that Judge Carney could have sent him to prison.
In the fall of 2009, Ruehle went on trial before Carney in U.S. District Court. The case against Nicholas had been severed.
Tullos testified that Samueli and Nicholas, who comprised the Broadcom Stock Option Committee, never met—which, the prosecution contended, showed that the company was manipulating the option-granting process.
However, during cross-examination, Tullos said that in fact they did meet. The turning point in the cross-examination came when Tullos said, “The facts for me have not changed. What has changed over time is my opinion of the facts.” In effect, she said she never believed that anything illegal had happened until the prosecutors convinced her that it had.
Carney granted a defense motion to grant immunity to Samueli, who was then called to testify on behalf of Ruehle.
During his testimony, Samueli said that he had pled guilty to making a false statement to the SEC. Ruehle’s attorney asked, “Do you recall whether that statement involved whether or not you were involved in granting options to officers of the company, which was the job of the compensation committee, and that you indicated that you were not so involved?”
Samueli said, “I recall the question was about my involvement in the granting process of options to Section 16 officers, who are the highest executives of the company, and…that is the purview of the compensation committee. And I replied that I wasn’t involved in the granting process, which was not truthful because, in fact, I was involved in making recommendations to the compensation committee.
“But ironically, the thing that bothers me most about that is that there is nothing wrong with being involved in the process of making grants to Section 16 officers. I’m perfectly allowed to make recommendations. So, why I would say I wasn’t involved escapes me,” he added.
“I thought long and hard about it because that is not my style,” Henry said. “I would never do something intentionally wrong under normal conditions. So my gut feeling is, because I was asked about a compensation committee issue, my instant reaction was to say, ‘No, I wasn’t involved,’ because I wasn’t on the compensation committee.
“But I apparently didn’t think through that question carefully because the question wasn’t whether I was on the compensation committee,” Samueli said. “It just asked about my involvement in the process of grants to Section 16 officers. I made that false statement and I accept it, but I bang myself in the head for making such a stupid statement.”
In fact, Samueli added, there were many, many examples of e-mails and discussions that showed his involvement in the Section 16 granting process. And, in fact, he had corrected his misstatement just 17 lines later in the transcript of his testimony before the SEC.
At the end of the day’s trial session, Carney called Samueli before the bench. “I’ll just get to the point of it,” the judge said. “Dr. Samueli, I’m going to set aside your guilty plea. I’m going to dismiss the (criminal charge) against you. I’ve looked at the plea agreement. I’ve listened to your testimony, and you didn’t make a false material statement.”
At the conclusion of the evidence in Ruehle’s trial, but before the case went to the jury, Carney dismissed the charges against Ruehle because of misconduct by the prosecutors in the case. He also dismissed the charges against Nicholas.
On January 12, 2010, Carney signed an order formally dismissing the charge against Samueli, ruling in part that the prosecutor, Adam Stolper, “acted flagrantly, willfully, and in bad faith” in the prosecution of Samueli and that Samueli had not committed a crime.
On January 28, 2010, Carney granted a motion to vacate Tullos’s guilty plea and dismiss the charges against her because evidence developed in her cross-examination in the Ruehle case proved her innocence.
– Maurice Possley