Former Broadcom CEO Indicted On Fraud And Drug Charges

The former CEO of telecom electronics company Broadcom stands accused of fraud and narcotics violations for backdating stock options and trafficking a variety of illegal drugs, some of which he is alleged to have used to spike the drinks of associates and employees.

Henry T. Nicholas III, co-founder and former CEO of Broadcom, and William Ruehle, the company's former CFO, were indicted on Thursday for participating in a plan to backdate stock options that cost their company $2.2 billion.

A second indictment returned on Wednesday alleges that Nicholas "obtain and employed, directed, and caused co-conspirators and associates to obtain controlled substances" including ecstasy, cocaine, and methamphetamine.

"Defendant Nicholas spiked the drinks of others with MDMA (ecstasy) without their knowledge, including, without limitation, the drinks of technology executives and representatives who worked for Broadcom's customers," the second indictment says.

That indictment further alleges that Nicholas hired prostitutes for himself, associates, and company customers, and provided the prostitutes with drugs. It also states that he attempted to conceal his conduct with death threats and payments.

If convicted, Nicholas faces up to 20 years in prison on narcotics charges and up to 340 years in prison for the combined financial charges. If Ruehle is convicted, he could face as many as 370 years in prison.

Nicholas and Ruehle are alleged to have engaged in a scheme to fraudulently backdate millions of stock option grants between 1999 and 2005 and to falsify documents to conceal their actions. The U.S. Attorney's Office of the Central District of California said that Nicholas surrendered to federal agents on Thursday morning.

"Nicholas and Ruehle were involved in a wide-ranging fraud that resulted in the largest financial restatement related to options backdating in the United States," said U.S. Attorney Thomas P. O'Brien in a statement. "It is critical to maintain the transparency of our financial markets, something that these defendants allegedly attempted to manipulate through the scheme, which created a false picture of Broadcom's finances."

The two indictments against Nicholas come six month after Nancy Tullos, the former executive VP of human resources at Broadcom, pleaded guilty to obstruction of justice and agreed to cooperate with prosecutors.

The Securities and Exchange Commission last month filed a civil fraud case against Nicholas, Ruehle, and two men who were active corporate officers of the company at the time but have since recused themselves from executive matters, CTO Henry Samueli and general counsel David Dull.

In April, Broadcom entered into a $12 million settlement with the SEC relating to its option grant practices.