Broadcom ex-CEO indicted over drug parties, options

By Peter Henderson

LOS ANGELES (Reuters) - The former head of Broadcom Corp took cocaine and spiked customers' drinks with ecstasy while also directing a stock-options backdating conspiracy that cost the company $2.2 billion, federal criminal indictments released on Thursday charged.

Former chief executive and company co-founder Henry Nicholas III also hired prostitutes for himself and others and then used payoffs or threatened violence to keep the conduct secret, one federal indictment alleges.

The charges come on top of a broader probe into one of the biggest stock-option backdating scandals among many that rocked corporate America when they started surfacing two years ago.

Court papers said Nicholas stocked a warehouse with drugs and electronics for parties and ordered a Broadcom employee to keep $10,000 on hand for his use. A pilot flying Nicholas and friends between Orange County and Las Vegas in 2001 once had to wear an oxygen mask to avoid marijuana smoke, the papers said.

Based in the quiet, conservative Orange County city of Irvine, Broadcom is one of Southern California's top technology firms, making microchips for mobile phones, network equipment and other consumer devices.

A 21-count backdating indictment charges Nicholas and former Chief Financial Officer William Ruehle with fraud and making false statements, covering up options costs that would have made the stock less attractive. The four-charge narcotics indictment charges Nicholas with obtaining and distributing drugs.

Nicholas, 48, surrendered to the Federal Bureau of Investigation on Thursday and is expected to appear in court along with Ruehle, 66, who is indicted as conspiring with his former boss on the backdating charges between 1999 and 2005, the U.S. Attorney's office said.

Ruehle's attorney said he was innocent of the charges and argued that the issue was an inadvertent "technical accounting error". "This is a classic case of government overreaching," lawyer Richard Marmaro said in a statement.

Nicholas's lawyer did not respond to a request for comment.

Prosecutors said they would ask a federal judge on Thursday to keep Nicholas in jail without bail because of his alleged history of intimidating witnesses, and since he is a flight risk, given his wealth.

Nicholas sold more than $1 billion of company stock during the backdating scheme, while Ruehle was granted options worth millions of dollars when they were granted, court papers say.

Broadcom in 2007 restated financial results and took more than $2.2 billion in charges for additional compensation expenses of options that were given to employees with manipulated dates in order to maximize their value.

Broadcom was not immediately available for comment.

Shares of Broadcom rose 2.3 percent to close at $28.75 on Nasdaq.

(Additional reporting by Sinead Carew in New York and Gina Keating in Los Angeles; Editing by Gerald E. McCormick and Braden Reddall)