O.C. TECH BILLIONAIRE INDICTED

Ex-Broadcom CEO Is Accused of Stock Fraud and Supplying
Drugs.

Somewhere in the skies between Orange County and Las Vegas, federal
prosecutors say, Broadcom Corp. co-founder and hard-partying
billionaire Henry T. Nicholas III gave new meaning to the term
"highflying."

Winging their way to Sin City in 2001, Nicholas and his entourage
generated so much marijuana smoke that it billowed into the cockpit,
"requiring the pilot flying the plane to put on an oxygen mask,"
according to a federal grand jury indictment made public Thursday.

The indictment, issued under seal a day earlier, accused Nicholas of
doling out drugs and prostitutes as part of a freewheeling lifestyle.

A second indictment accused Nicholas of manipulating stock options at
Broadcom, the Irvine-based maker of computer chips used in such
products as mobile phones, Apple Inc.'s iPod and Nintendo Co.'s Wii
consoles.

Broadcom co-founder Henry Samueli was not charged, but was referred to
as an "unindicted co-conspirator" in the stock options indictment,
which identified him by his initials.

The two founded Broadcom in 1991. They are among the best-known
entrepreneurs in Southern California, having helped shape Orange
County's modern image as a technology magnet.

The Securities and Exchange Commission last month accused Samueli and
Nicholas of backdating stock options to make them more valuable,
leading Samueli to step aside as Broadcom's chairman pending
resolution of the case.

Samueli, who also owns the National Hockey League's Anaheim Ducks, has
denied any wrongdoing.

Nicholas, who stepped down as Broadcom's chief executive in 2003,
surrendered Thursday morning to the FBI.

In a 21-count indictment, Nicholas and William J. Ruehle, 66,
Broadcom's former chief financial officer, were accused of backdating
millions of stock options for five years to improperly reward employees.

A second, four-count indictment names only Nicholas, 48, and alleges
that he maintained homes and commercial properties in Orange County
and Las Vegas for the "purpose of using and distributing controlled
substances," including cocaine and methamphetamine.

Among other things, Nicholas allegedly supplied Broadcom customers
with prostitutes and narcotics he sometimes referred to as "party
favors." He is accused of slipping drugs into some of their drinks.

"Defendant Nicholas spiked the drinks of others with MDMA (ecstasy)
without their knowledge, including . . . the drinks of technology
executives and representatives who worked for Broadcom's customers,"
the indictment alleged. No victims were identified by name.

Lawyers for both men denied the allegations.

"Dr. Nicholas will contest these charges vigorously," his lead
attorney, Brendan V. Sullivan Jr. of Washington, D.C., said in a
statement. "He is confident that he will be fully vindicated."

Ruehle's lawyer, Richard Marmaro of Los Angeles, said Ruehle "looks
forward to the opportunity to clear his good name in a court of law."

Under Close Watch

At an afternoon hearing in U.S. District Court in Santa Ana, Nicholas
sat quietly in a jury box with criminal defendants from other cases,
the unbuttoned sleeves of his dress shirt pulled over his handcuffs.
He occasionally scowled as his lawyers and prosecutors argued over
whether he should be held without bail as a flight risk and a threat
to the community.

U.S. Magistrate Judge Arthur Nakazato ordered Nicholas freed on bail
of $3.4 million secured by property pledged by his mother, who was in
court Thursday, and a group of friends.

Nakazato ordered that Nicholas be confined to a Malibu drug treatment
facility, with electronic monitoring, and that his two private planes
be disabled. He warned Nicholas that he would be arrested if he
violated any terms of his release, which also stipulate random drug
tests.

He and Ruehle, who also appeared in court Thursday and was freed on a
$2-million bond, are to be arraigned June 16.

The indictment that names both men details a conspiracy to backdate
stock options to make them worth more to employees without having to
report the expense to shareholders.

An Expensive Fix

To correct its books, Broadcom last year recorded $2.2 billion in
previously unreported expenses -- the biggest such adjustment among
the more than 200 firms whose options practices have come under scrutiny.

"By fraudulently backdating and repricing option grants, defendants
and their co-conspirators deceived Broadcom's shareholders, potential
shareholders and auditors as to the nature and amount Broadcom truly
was compensating its employees and officers," the indictment alleged.

Stock options were routinely used to recruit or retain employees
during the high-tech boom of the late 1990s.

The indictment details one such arrangement, when Nicholas in June
1999 hired an engineer identified in the indictment by his initials,
M.N.

The then-CEO allegedly told M.N. that the 120,000 options he was to
get would be backdated to May 25 of that year, increasing their value.
After starting work, M.N. discovered that the grant date had been
recorded as May 28, which diminished their value.

He demanded that the date be changed to the more favorable one he'd
agreed upon with Nicholas. After internal discussion that involved
Ruehle and others, Nicholas and Samueli in July 1999 "signed Broadcom
corporate records fraudulently reflecting" the earlier date, the
indictment alleges.

It was a move that would come back to bite them, according to the
indictment.

After Broadcom terminated the engineer -- and his stock options -- in
October 2000, his attorney presented Nicholas and Ruehle with a draft
of a lawsuit that would have exposed the illegal backdating if made
public, prosecutors say.

Nicholas met the engineer at an Orange County hotel, "pleaded with
M.N. not to come forward with his allegations" and cut a deal to vest
85% of the options that had been canceled if he would keep the matter
quiet.

"At the time of the meeting with Nicholas, this settlement offer was
worth over $7 million to M.N.," the indictment says.

Nicholas also allegedly paid $1 million in June 2002 to buy the
silence of another, unnamed Broadcom employee who was aware of his
illegal drug activity, the other indictment unsealed Thursday alleges.

Ruehle's attorney, Marmaro, said his client relied on the advice of
Broadcom's auditors in operating the stock option program. He
characterized the backdating problems as accounting glitches with no
intent to defraud shareholders or mislead financial analysts.

"This is a classic case of government overreaching," Marmaro said in a
statement. "The government's indictment unsuccessfully attempts to
transform a company's technical accounting error into criminal conduct."

Claims of Sex and Drugs

In the drug indictment, Nicholas is alleged to have used death threats
and payoffs to conceal his "unlawful conduct."

The indictment describes repeated drug purchases for Nicholas, which
were sometimes disguised as "supplies" or "refreshments" on invoices.

"In or around 2001, in the lobby of Broadcom's offices . . . Nicholas
directed a Broadcom employee to provide approximately $5,000 to
$10,000 in cash to a drug courier in exchange for an envelope
containing controlled substances," the indictment alleges.

The document also lists three properties described in previous Los
Angeles Times stories about Nicholas' alleged indulgences in drugs and
prostitutes:

* An equestrian estate in Laguna Hills, where Nicholas had constructed
a series of tunnels and underground rooms, including one that
contractors alleged was intended to become a "secret and convenient
lair" to indulge his "manic obsession with prostitutes."

* A warehouse-office complex in nearby Laguna Niguel, which
contractors said was used for sex and drugs and nicknamed "The Ponderosa."

* A Newport Coast residence where Nicholas was trying to start a
record company and where rock groups frequently visited.

In a 2006 lawsuit seeking back wages, former Nicholas aide Kenji Kato
contended that this home also was the scene of frequent drug use and
other sordid behavior.

"The allegations of our complaint seem to be validated by the
indictment -- both indictments," said Joseph Kar, the attorney for
Kato, whose lawsuit is pending in Los Angeles County Superior Court.

The indictments illustrate that Nicholas used his businesses and
employees "to protect himself and to carry out his personal whims,"
Kar said. "The long and short of it is his personal whims were illegal."

The stock option allegations outlined in the indictment were similar
to the SEC lawsuit last month that accused Nicholas, Ruehle, Samueli
and the company's former general counsel, David Dull, of backdating
stock options.

Samueli and Dull were not named in the indictment unsealed Thursday,
although the government could still seek to charge them later.

Samueli, a prominent philanthropist, was Nicholas' engineering
professor at UCLA.

Nicholas quit the company in 2003, saying he wanted to spend time
trying to repair his marriage, which later fell apart.

Although Samueli stepped down from his executive role at Broadcom when
the SEC lawsuit was filed, he remains at the company in an advisory
capacity.