Chipmaker Broadcom stock options backdating case ends

LOS ANGELES (Reuters) - U.S. prosecutors will not appeal a judge’s dismissal of stock options backdating-related charges against computer chipmaker Broadcom Corp co-founders Henry Nicholas and Henry Samueli.

The decision announced on Friday ends one of the U.S. government’s biggest stock-option backdating cases in years, derailed when a judge found evidence of prosecutorial misconduct.

U.S. District Judge Cormac Carney in December dismissed the stock options backdating case against Nicholas, after setting aside Samueli’s guilty plea on charges of falsely telling investigators he was not involved in backdating.

In January, U.S. prosecutors indicated they planned to appeal the judge’s decision. The prosecutors had needed approval from Justice Department officials in Washington to launch their appeal, and had faced a June 10 deadline.

“After a thorough evaluation of the issues associated with the cases, the government decided to not pursue the appeals,” Thom Mrozek, a spokesman for the U.S. Attorney’s Office, said in a statement.

Stock options backdating at California-based chipmaker Broadcom led to a $2.2 billion write down in 2007.

Backdating involves setting a stock option price at a date prior to the date the option is issued. Options usually must be granted at an exercise price no lower than the stock’s fair market value on the date of the option grant.

Backdating to a date when the stock price was lower instantly puts the option “in the money.”

Although backdating as such is not illegal, companies and recipients must disclose it and follow pertinent accounting and tax rules.

Carney questioned whether the government ever had proof of crimes at Broadcom, which he found engaged in similar accounting practices as Apple Inc and Microsoft Corp by backdating stock options.

Carney also found U.S. Attorney Andrew Stolper conducted a “campaign of intimidation” to force Samueli and Tullos to plead guilty to crimes they did not commit, and cited witness intimidation by prosecutors.

The government’s most sensational allegations in the case were that Nicholas, a co-founder, distributed cocaine, ecstasy and methamphetamine at parties at his homes. But Carney dismissed the case against Nicholas, again due to findings of witness intimidation by prosecutors.

And Carney in December threw out the stock-option backdating case against former Broadcom chief financial officer William Ruehle. Nicholas and Ruehle faced life in prison if they had been convicted.