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Broadcom Braces for Trial Fallout in Case of ex-CFO

Irvine chipmaker Broadcom Corp. is bracing for an assault on its public image with the federal trial of its former finance chief Bill Ruehle, set to start this week.

Ruehle, along with Broadcom cofounder and former chief executive Henry “Nick” Nicholas, is charged with conspiring to conceal and understate the chipmaker’s compensation expenses from 1999 to 2005 by backdating stock options.

Ruehle is charged with 21 counts of fraud, falsifying options and lying to investigators, among other counts.

Nicholas, who also faces separate drug charges, is set to go to trial next year.

Both have pleaded not guilty to the fraud charges. Ruehle isn’t part of the Nicholas drug case.


Broadcom on Trial?

Although neither are involved in Broadcom anymore,Ruehle left in 2006 after serving as financial chief for most of the company’s existence, while Nicholas left in 2003,the chipmaker is likely to share the hot seat, if not some blame.

Some company watchers say Ruehle’s defense could seek to paint a picture of poor management and a lax corporate culture where falsified options were routine.

Broadcom Chief Executive Scott McGregor said last year that the legal issues of its former executives “aren’t a distraction.”

The company seems intent on keeping it that way throughout the course of the Ruehle and Nicholas trials.

Unlike Ruehle and Nicholas, Broadcom cofounder Henry Samueli still is involved in Broadcom as an adviser. His legal fate is tied to the cases of Ruehle and Nicholas.

Last month, a federal appeals court declined to weigh in on a judge’s rejection of Samueli’s 2008 plea deal in which he pleaded guilty to lying to investigators about stock options.

The judge said he’d rather wait to address the matter until after the Ruehle and Nicholas trials.

Samueli stepped down last year as chairman and chief technology officer at Broadcom before the Securities and Exchange Commission sued him over his involvement in granting backdated stock options. That lawsuit also is on hold pending the criminal trials.

Ahead of Ruehle’s trial, Broadcom has hired an outside public relations expert to handle questions from the media.

It brought in Mark Fabiani, a La Jolla-based lawyer who has worked for former Vice President Al Gore, President Bill Clinton and Los Angeles Mayor Tom Bradley.

Fabiani specializes in counseling “clients facing complex financial, communications, government affairs and legal challenges,” he said.

He also has held senior posts at the departments of Justice and Housing and Urban Development.

Fabiani at one point was half of the consulting partnership Fabiani & Lehane. Along with Chris Lehane, the pair once was dubbed the “masters of disaster” for their damage-control work for politicians.

Fabiani declined to comment for this story.

A Broadcom spokesman said the company has been known to hire outside public relations help when there is a complex issue at stake.

A few months ago, Broadcom brought on a different firm when it was pursuing a hostile takeover bid of Costa Mesa’s Emulex Corp. that involved several lawsuits.

The company said Fabiani is set to facilitate requests from the media and help answer questions on a timely basis so that others at Broadcom can focus on their jobs.

“The company now has new leadership that is intensely focused on engineering and financial performance, and there is no reason to divert people with significant jobs for a trial that’s focusing on events that are nearly 10 years old,” said a source familiar with the company.

Broadcom didn’t say whether Fabiani will stay on for Nicholas’ trials.


Distance

The chipmaker has done a lot to distance itself from the legal troubles of Ruehle, Nicholas and Samueli.

It’s emphasized the achievements of its current leaders, including McGregor. The options backdating pre-dates McGregor, who’s largely credited with ushering in an era of stability and calm at the maturing chipmaker.

“The company won’t have much to add to what is going on in court,” said a person familiar with the chipmaker.

Broadcom makes communications chips that go into networking gear, cell phones, cable set top boxes and computers, among other consumer electronics.

The company has settled all litigation related to the options probe, including an SEC lawsuit and shareholder lawsuits.

In early 2007, Broadcom restated several years of financial results to reflect $2.2 billion in charges for misdated stock options. The restatement bill was the largest of any company involved in a stock options probe by the government.

During the past year or so, Broadcom has revamped its own accounting practices to become more transparent and in line with corporate reporting norms.

Wall Street analysts, who are almost always focused on the future, generally don’t expect to see the trial weighing on the stock.

Broadcom’s highflying shares show no sign of faltering. The stock has doubled in the past 12 months on a recent market value of about $15 billion.

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