Federal prosecutors are dropping drug charges against Broadcom Corp. cofounder Henry Nicholas just weeks before they were set to appear before a skeptical judge to prove why the case should go forward.
Nicholas, who left Irvine-based Broadcom in 2003, was charged with four counts of distributing cocaine, Ecstasy and other drugs to friends and business associates.
The case stemmed from a federal probe into stock options backdating at Broadcom. Options cases against Nicholas and a former and current Broadcom executive fell apart last month.
In December, U.S. District Judge Cormac J. Carney dismissed options-related charges against Nicholas, former financial chief Bill Ruehle and cofounder Henry Samueli, who was reinstated as an executive at the chipmaker last month.
The judge cited alleged prosecutor misconduct and a lack of evidence.
Lawyers from the U.S. Attorney’s Office in Santa Ana said they plan to appeal the dismissal of the options cases against Nicholas and Samueli.
Carney also dismissed a Securities and Exchange Commission lawsuit against former Broadcom executives.
He ordered prosecutors to come back before him on Feb. 2 to make the case as to why drug charges against Nicholas should go forward.
Many saw the judge leaning toward a dismissal of the drug allegations, which spurred even more media leaks than the options cases.
“Judge Carney appears to be signaling to the prosecutors that they should seriously consider dismissing the drug charges,” 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, told the Business Journal earlier this month.
Carney also cited what he saw as prosecutor misconduct against Nicholas, including a threat to subpoena his 13-year-old son.
The government’s indictment alleged Nicholas provided drugs and prostitutes to friends, business associates and even Broadcom customers. Their indictment alleges he slipped some customers drugs in their drinks.
Nicholas had a reputation as a hard charging, hard partying executive. Before and after his indictment, a video and an e-mail surfaced that appeared to link him to drug use.
Even so, lawyers called it unusual for prosecutors to bring federal charges, something usually reserved for the biggest drug cases.
“The drug case was nothing more than an effort to continue to put pressure on Nicholas, perhaps to enter a plea or cooperate against the others” in the options cases, said H. Dean Steward, a San Clemente criminal defense lawyer known for his work in federal cases.
Prosecutors came across drug allegations as part of their investigation into options at Broadcom.
In early 2007, Broadcom restated several years of financial results to reflect $2.2 billion in charges for misdated stock options, the highest restatement bill of any company involved in the options issue.
By appealing the dismissal of the options cases, prosecutors likely are trying to “save face,” Gross said.
“Not appealing is almost an admission that the judge got it right with respect to both the merits of the case and the prosecutorial misconduct,” Gross said.
