Update: the U.S. Attorney’s Office has filed for more time as it considers appealing the cases of Broadcom Corp.’s cofounders. For more, see the Business Journal’s latest story.
What’s left of the federal government’s cases against Broadcom Corp.’s cofounders soon could come to a head.
Whether it brings more legal wrangling for Henry Samueli and Henry Nicholas or a quiet end to an already drawn-out ordeal is the question.
The U.S. Attorney’s Office faces a May 10 deadline to file an opening argument in its bid to appeal the December dismissal of illegal stock options backdating charges against Samueli and Nicholas.
In January, prosecutors filed a notice of appeal indicating they planned to try to reverse the dismissals. A decision to move forward has rested with the Office of the Solicitor General in Washington, D.C.
A spokesman for the U.S. Attorney’s Office in Los Angeles declined to say whether the solicitor general has signed off on an appeal, saying only that “the notice of appeal hasn’t been withdrawn.”
Prosecutors are said to be preparing an opening brief to submit next week to the Court of Appeals for the 9th Circuit in San Francisco. But whether an appeal will go forward is unclear.
The government also could seek more time to consider its options.
Sources familiar with the Samueli and Nicholas cases contend no decision has been made on moving forward.
“We are all outside the Vatican waiting for the white smoke,” said one person following the case.
In a set of stunning moves in December, U.S. District Judge Cormac Carney in Santa Ana threw out charges against Samueli and Nicholas as well as former Broadcom financial chief Bill Ruehle.
The three were charged after an investigation of backdated stock options at Broadcom. In early 2007, the chipmaker restated several years of financial results to reflect $2.2 billion in charges for misdated stock options from 1998 to 2003.
The restatement bill was the highest of any company involved in the options issue.
Ruehle went to trial in December, while Nicholas was awaiting trial this year. Samueli agreed to plead guilty to lying to investigators, but hadn’t been sentenced when the dismissals came down.
At the end of Ruehle’s trial, Judge Carney cited a court finding of prosecutor misconduct and a lack of evidence in dismissing cases against all three.
The judge also threw out a Securities and Exchange Commission lawsuit that named Samueli, Nicholas and Ruehle.
In January, Carney also threw out a prosecution plea deal with former Broadcom human resources executive Nancy Tullos, who had pleaded guilty to one count of obstruction of justice.
Prosecutors also hope to appeal the dismissal of her case.
Since Ruehle went to trial, his dismissal isn’t subject to an appeal because of the Constitution’s protection against being tried twice for the same charges, according to lawyers.
If the U.S. Attorney’s appeals division in Los Angeles moves ahead in the other cases, an opening brief would be expected to argue that the judge erred and that the dismissals should be reversed by the appellate court.
Lawyers for Samueli, Nicholas and Tullos then would be given time to file an opposing brief, presumably arguing why the dismissals should stand.
From there, both sides could be called to make arguments before a panel of three 9th Circuit judges.
The appeals court could hand down a range of rulings, from letting the dismissals stand to reversing all or part of them, according to one lawyer familiar with the case.
Predicting what a full or partial reversal would mean for Samueli and Nicholas is difficult, he said.
It’s possible the Samueli and Tullos plea bargains and Nicholas indictment could be reinstated, one legal source said.
If the 9th Circuit opts to reverse the rulings, the cases would be sent back to Carney’s courtroom.
That could be a factor for the government in pursuing an appeal, after the judge’s damning blow to its cases in December and January.
Many have figured the cases against Samueli and Nicholas were dead. But the government may be encouraged after recent wins in other options cases, according to some.
Bruce Karatz, former chief executive of Los Angeles-based homebuilder KB Home, was convicted last month on four charges related to options backdating. He was cleared of 16 others.
In March, former Brocade Communications Systems Inc. chief Gregory Reyes was convicted of nine counts of securities fraud and submitting false statements regarding backdated options.
“It might embolden prosecutors to seek an appellate review,” said Wayne Gross, partner in the litigation practice at Greenberg Traurig LLP in Irvine and former head of the U.S. Attorney’s Office in Santa Ana, which led the prosecution of Nicholas, Samueli and other Broadcom cases. “To the extent that Judge Carney’s rulings suggested that options backdating may not be a criminal offense, these convictions perhaps bolster the government’s view that indeed it is.”
But neither executive was convicted specifically for backdating options.
In Karatz’s case, “they had overwhelming evidence,” said a person familiar with the Broadcom cases. “Given the vagaries of the law and how much accounting principles have changed over time, they still couldn’t convict him on backdating. It drives home how difficult these cases are.”
That may not matter to prosecutors, according to Gross.
“What a lot of prosecutors say is, ‘As long as you get one felony conviction it’s a victory, especially in a white collar case,’” he said. “A conviction is a conviction.”
Samueli and Nicholas started Broadcom, the county’s largest chipmaker and one of its most high-profile companies, in 1991.
Nicholas was chief executive from Broad-com’s start until 2003. Samueli has served as chairman and has overseen chip development since the company’s founding.
Samueli stepped down from an executive role at Broadcom from 2008 to late 2009 and served as an adviser amid the legal fallout over options.
He resumed an executive post in December after the judge threw out his plea deal.
Tullos left the company in 2003. Ruehle left in 2006.