Sordid allegations add to billionaire's woes - Henry T. Nicholas III, already under a legal cloud, is accused of drug use and other excesses.

A decade later, the 47-year-old faces a federal investigation and accusations from a former employee that threaten to tarnish his image as one of the tech industry's leading entrepreneurs and one of Orange County's most generous philanthropists.

Federal authorities are probing Nicholas' role in the manipulation of stock option grants at Broadcom Corp., the Irvine company he co-founded and led until 2003. The inquiry follows an internal company review that found Nicholas bore "significant responsibility" for the so-called backdating of option grants.

In conducting their probe, federal investigators have taken note of a civil suit filed in Los Angeles County Superior Court by Kenji Kato, who worked for Nicholas as an administrative assistant for nearly seven years beginning in 1999.

In court filings, Kato alleged that Nicholas required him to oversee supplies of cocaine and other drugs, pay prostitutes from a "petty cash" fund and conceal his boss' "extracurricular activities," including his alleged drug use, from his wife and others.

Nicholas' lawyer called the allegations "crazy" and contended the civil suit was a $9-million extortion scheme. Los Angeles County sheriff's detectives investigated the extortion allegation and the case was under review by the district attorney, officials said.

Federal prosecutors, meanwhile, were examining the issues in the civil case to determine whether they were relevant to the options case, according to two people with knowledge of the probe who spoke on condition of anonymity because it was an active investigation.

Federal agents this week served subpoenas on several of Nicholas' employees, but not the billionaire himself, according to another person with knowledge of the matter who spoke on condition of anonymity.

The Kato case adds another layer to Nicholas' legal tribulations, which include a divorce case with allegations of drug use against him by his estranged wife, Stacey Nicholas.

Henry Nicholas has denied those allegations, and also denied the claims in Kato's suit.

"These absurd allegations seem to be intended to disrupt the principal focus of my work, post-retirement, which would be in criminal justice and medical research," he said in a statement to The Times.