Samueli and Broadcom going different ways
(Orange County Register, The (CA) (KRT) Via Thomson Dialog NewsEdge) Feb. 17--A federal investigation into stock options issued by Broadcom Corp. has driven a wedge between the Irvine semiconductor company and its chairman, Henry Samueli.
Samueli has hired a personal attorney to represent him as federal investigators look into the company's options awards. The attorney, Gordon A. Greenberg, declined to discuss his role or the current status of the case, following news reports his client has declined to cooperate with authorities.
"It's highly inappropriate and misleading for anybody to be making statements now," Greenberg said.
Whether Samueli becomes a witness, or a target, in any federal probe could depend on how he cooperates with investigators, said John Hueston, a former federal prosecutor now in private practice.
"Government prosecutors are attempting to increase the likelihood of Samueli making a choice he would rather not make: Submit to an interview with the government or be forced to resign with the anticipated perception he truly has something to hide," said Hueston, who successfully led the prosecution of former Enron executives Kenneth Lay and Jeffrey Skilling.
Broadcom's outside attorney, David Siegel of Irell & Manella in Los Angeles, said Friday that the company and Samueli were responding to investigators separately.
"The company is not going to comment on ongoing government investigations, except to reiterate it is cooperating with authorities and that Dr. Samueli did fully and voluntarily cooperate with the company's internal investigation," Siegel said. He left open the question of Samueli's cooperation with federal investigators.
It's common for executives to hire personal counsel in company cases, because their interests are not always perfectly in sync. But attorneys said it's hard to separate Samueli from Broadcom, a company he co-founded and serves as chairman of the board and chief technical officer.
The Securities and Exchange Commission and Department of Justice are investigating possible civil and criminal wrongdoing connected to Broadcom stock options issued from 1998 to 2003. Broadcom is one of at least 130 companies facing federal criminal or civil investigations, because the options were timed to increase their potential value.
Broadcom has already been forced to make a non-cash restatement of $2.3 billion to account for the options, the largest restatement of any company in the nation.
Last month, the company released an internal investigation that cleared Samueli of wrongdoing in the awards process, saying he "reasonably relied on management and other professionals regarding the correct option accounting treatment and grant approval process." Samueli and Broadcom's co-founder Henry Nicholas were co-chairmen on the company's equity awards committee, which doled out stock options during the late '90s. Those awards are behind the current probe.
Broadcom's internal investigation found that the company issued options to employees between 1998 and 2003 by selecting grant dates with a lower price to maximize their value. Options, which were commonly used as a form of compensation by cash-poor but fast-growing tech companies like Broadcom, are an opportunity to buy stock at a future date at a fixed price. More than 95 percent of the options that prompted the investigation were issued to employees, the company said.
The company's investigation blamed Nicholas and two other executives for the improper options -- former Chief Financial Officer William Ruehle and former human-resources chief, Nancy Tullos.
The internal investigation said Nicholas "bears significant responsibility for the lack of adequate controls in the option granting process due to the tone and style of doing business he set." In a statement Friday, Nicholas, who left the company in 2003 to spend more time with his family in Laguna Hills, said the awards process was a low priority when he worked there.
"My focus was on integrating dozens of acquisitions and delivering financial results that met expectations and the highest level of accounting integrity. The minutiae of employee paperwork and documentation were not at the top of my list," he said.
The internal investigation said Ruehle "failed to provide proper advice concerning proper accounting standards or to establish proper procedures.
He was involved with grants for which the grant date was selected after the fact, and personally received options included in some of such grants." Ruehle resigned amid the investigation in September and later surrendered stock options worth about $32 million.
Ruehle's attorney, Richard Marmaro, did not respond Friday to requests for comment on the case.
The Wall Street Journal said Friday that auditors from Ernst & Young warned Ruehle and other Broadcom officials not to make "subsequent allocations," as the option timing was sometimes called. The warnings went unheeded until Broadcom reformed its options process in 2003. Ernst & Young said Friday it does not comment on client matters.
Broadcom's internal investigation said Tullos "was involved with grants for which the grant date was selected after the fact, and personally received options included in some of such grants." In December, Broadcom cancelled $4 million in options to Tullos which remained outstanding.
Her attorney, Ismail "Izzy" Ramsey, declined to comment Friday, pointing to previous statements that his client relied on legal and accounting experts for the options process. Tullos left the company in June 2003 and later worked for QLogic Corp. in Aliso Viejo.
Broadcom's stock closed at $35.25, down 11 cents Friday.
By John Gittelsohn and Andrew Galvin
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