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Broadcom co-founder asks court to uphold plea deal

Henry Samueli appeals to a federal panel after a judge refuses to accept his agreement with prosecutors over the backdating of company stock options. The accord would let him avoid prison.

September 03, 2009|E. Scott Reckard

Federal appeals court judges were skeptical of Henry Samueli's arguments for upholding his plea bargain in the Broadcom Corp. stock option manipulation case -- an agreement that would allow the billionaire Anaheim Ducks owner to avoid prison after pleading guilty to lying and paying a $12-million fine.

A lower court had refused to accept Samueli's deal with prosecutors a year ago, saying it "gives the impression that justice is for sale."

At a hearing Wednesday, the U.S. 9th Circuit Court of Appeals didn't appear ready to buy a defense argument that the trial judge was improperly pressuring Samueli to testify.

"All the [lower] court is saying is that this is the wussiest-looking plea agreement I have ever seen," Circuit Judge Ferdinand F. Fernandez said as the Broadcom co-founder and former chairman sat with his wife, Susan, in the courtroom in Pasadena.

Outside court, the Samuelis and lawyers for both sides declined to comment.

In his ruling last year, U.S. District Judge Cormac Carney in Santa Ana noted that Nancy Tullos, Broadcom's former human relations director, had been required to cooperate with prosecutors as part of her plea bargain in the case -- a burden not imposed on Samueli.

Samueli's attorney, Gordon Greenberg, argued that the judge was improperly pressuring his client to waive his constitutional right not to incriminate himself. The defense attorney contended that Carney had relied on unproven allegations against Samueli, who is listed in a federal indictment as an unindicted co-conspirator in the case.

Greenberg contended that Carney was trying to force Samueli to help the government prosecute its criminal case against Henry T. Nicholas III, Broadcom's co-founder and former chief executive, and William J. Ruehle, its former finance chief.

Nicholas and Ruehle, who have pleaded not guilty, could be sentenced life in prison if convicted on all counts, Carney wrote last September in rejecting the plea agreement.

"It is clear the court wanted Dr. Samueli [to testify] and was sending a very strong message that he should cooperate," Greenberg said.

The defense attorney said prosecutors had "candidly conceded" to Samueli's probation officer that they "could not prove" that Samueli committed securities fraud for his role in improperly backdating $2.2 billion in Broadcom stock options to make them more valuable to employees at the Irvine microchip maker.

Samueli, 53, pleaded guilty last year to lying to the Securities and Exchange Commission. The SEC has filed a civil lawsuit alleging that Samueli, Nicholas, Ruehle and former Broadcom general counsel David Dull engaged in "a massive, five-year scheme that involved fraudulent backdating of dozens of option grants, falsifying corporate records, intentionally false accounting and lying to shareholders."

At the appeals court hearing, George S. Cardona, the acting U.S. attorney in Los Angeles, said prosecutors had a weaker case against Samueli, but they never said they couldn't prove the charges.

The 9th Circuit has no authority at this point in time to overturn Carney, Cardona said, maintaining that Samueli can file an appeal later if he wants to contest whatever sentence is passed down.

Fernandez said Carney's statements did not appear to be an attempt to require Samueli to testify, but instead to put on the record the concerns that led the judge to reject Samueli's deal with the government.

"He's saying there's a lot of facts in front of me, a lot of information that makes me uneasy," Fernandez said. "There are a lot of other people that might get whacked really hard."

Broadcom's $2.2-billion restatement of its financial results was the largest amount among about 200 companies caught up in the scandals over backdating stock option grants without proper public notice.

Stock options are rights to buy shares at a set price at a future date, giving recipients a chance to cash in when the price rises. Broadcom, like many technology companies, used options to attract talented engineers and backdated the grant dates to take advantage of times when the stock price was low. That essentially misstated the option expense on the company's books.

Samueli's plea bargain included probation and a special fine of $12 million, which was far more than the $250,000 maximum penalty under the law.

"The court cannot accept a plea agreement that gives the impression that justice is for sale," Carney wrote.

In lower court documents, prosecutors described Samueli's role at Broadcom as less hands-on than those of Nicholas and Ruehle and noted an internal company investigation that faulted the latter two, not Samueli, in the improper backdating of options.

The plea-bargained sentence followed long negotiations that took "all variety of factors into consideration," the prosecutors wrote.

The factors included the relative strengths of the parties' positions, including the difficulty in proving a case given Samueli's lack of involvement with publicly filed documents.

Prosecutors also cited as factors Samueli's "lack of interaction with accountants and finance, the findings of the Broadcom internal investigation regarding Samueli and the perception by many co-workers that he did not bend the rules."


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