Stock options trial starts for Broadcom ex-CFO

By Gina Keating

SANTA ANA, California (Reuters) - A former Broadcom Corp executive cheated the chip company's investors out of billions by hiding compensation expenses and lining his pockets with the proceeds of backdated stock options, federal prosecutors said on Friday at the trial of William Ruehle.

But lawyers for Broadcom's former chief financial officer, who went on trial in Santa Ana, California, said the government has recast innocent "accounting mistakes" made by hundreds of top U.S. tech firms as "lying, stealing and cheating" by the 67-year-old former executive and others.

Assistant U.S. Attorney Andrew Stolper said in his opening statement that Ruehle and his co-conspirators were determined to have the "best and brightest" engineers to propel growth at Broadcom -- then an upstart in the semiconductor industry -- "without having the cost show up on the... bottom line."

Stock option backdating at Irvine-based Broadcom led to a $2.2 billion restatement in 2007.

The neatly dressed, white-haired Ruehle, who resigned from Broadcom in 2006 after helping guide the company from $20 million in revenue to $4.6 billion in nine years, sat quietly at the counsel table during opening statements, occasionally jotting notes on a yellow legal pad.

He is accused along with Broadcom co-founder Henry Nicholas III of conspiring to conceal and understate the chipmaker's compensation expenses between 1999 and 2005, and of paying off a former employee who threatened to expose the scheme.

'TOO CUTE'

Broadcom management granted millions of "in the money" options to employees and themselves without booking the expenses and then tried to cover up grants made months after the dates reflected in financial statements, Stolper said.

"We are going to see grant after grant ... where defendants would debate which was the best date to backdate options to," Stolper said. "This is not a case about business. It's not a case about accounting. It is a case about lying."

Prosecutors showed the jury emails in which Ruehle appeared to choose stock option grant dates from among several closing prices, and one in which he warned other executives not to "get too cute" or auditor Ernst & Young would "blow the whistle on our whole program."

Defense attorney Richard Marmaro said in opening statements that Broadcom, like some 200 U.S. companies, was caught in 2006 by a change in the interpretation of rules about how to account for stock options-based compensation that resulted in hundreds of restatements.

"What's happened now is that this innocent conduct has been recast and words like lying, cheating, stealing are used to supercharge the allegations," Marmaro said.

"What happened in this case did not result in layoffs, bankruptcy or government bailouts. (Broadcom) is a success story right here in Orange County," he added.

Stock options were "an important part" of Broadcom's strategy to attract and retain the best engineers and to preserve its cash for research and development, Marmaro said.

He blamed "delays and frustrations" in the timing of stock options grants on the volatile stock market and on Nicholas' "management style."