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Court rejects Henry Samueli's bid to revive plea bargain

The Anaheim Ducks owner had challenged a judge's decision to cancel his deal with prosecutors in a Broadcom stock case. An appellate panel says he must wait until he is sentenced before he can appeal.

September 25, 2009|E. Scott Reckard

A federal appeals court panel on Thursday refused to reinstate a proposed plea bargain that guaranteed Anaheim Ducks owner Henry Samueli that he would spend no time in prison as a result of alleged stock option manipulation at Irvine microchip designer Broadcom Corp.

The three-judge panel of the U.S. 9th Circuit Court of Appeals did not rule on the merits of the arguments by Samueli, the billionaire co-founder and former chairman of Broadcom. Instead, it said it has no jurisdiction at this time and ruled that Samueli must wait until after he is sentenced before appealing. Federal prosecutors declined to comment.

In a statement, Samueli attorney Gordon Greenberg said the defense "will carefully review the court's analysis and consider all our options."

Samueli had asked the appeals court to overturn a decision last year by U.S. District Judge Cormac Carney in Santa Ana. Carney said he could not accept Samueli's deal with federal prosecutors, which called for an unusual $12-million fine and five years' probation, because it "gives the impression that justice is for sale," considering the harsh sentences faced by other defendants in the case.

Carney said he wanted to see all the evidence in the case before deciding on an appropriate sentence for Samueli, 53, of Corona del Mar.

Samueli argued that Carney was wrongfully trying to force him to testify against Broadcom co-founder Henry T. Nicholas III, the company's former chief executive, and William J. Ruehle, its former chief financial officer. The plea bargain agreement did not require him to cooperate with prosecutors.

Nicholas and Ruehle are facing securities fraud charges alleging that they improperly backdated billions of dollars in Broadcom stock options to make them more valuable to employees of the company.

They have pleaded not guilty and are awaiting trial. Nicholas also has pleaded not guilty to a separate indictment charging him with furnishing drugs to friends and business associates.

Samueli pleaded guilty last year to one count of lying to the Securities and Exchange Commission. He had told SEC investigators that he had no involvement in making grants of options. He now admits that he was involved in granting options, although he has not acknowledged participating in any improper actions.

Carney has not set a date for sentencing Samueli. In rejecting the plea bargain, he suggested that he would wait until the conclusion of the trials of Ruehle and Nicholas. Ruehle's trial is scheduled to begin Oct. 20, and Nicholas is to face a jury in February in the stock option case.

Companies grant stock options to employees to motivate them to work hard. They usually allow the employees to buy shares of company stock at the price on the day the options are issued. The options gain in value if the company prospers and its stock rises.

Backdating stock options to days on which shares were trading at a lower price makes them more valuable when they are issued. This practice is not against the law, but companies that do so are required to disclose the fact publicly and to report additional employee expenses in their financial reports.

Broadcom repeatedly did not report such backdating, although its former executives contend the error was innocent and that its practices were similar to those of companies throughout the technology industry.

The issue of widespread manipulation of stock options erupted in 2006 after academic studies showed that scores of companies, particularly in the technology field, had awarded options regularly on dates when the share prices were at low points.

Broadcom's $2.2-billion restatement of its financial results was the largest amount among about 200 companies caught up in the scandals.

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." All four have denied that they acted improperly.


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