A decade of record making financial scandals and suits added one more headline just before its close on December 30, 2009. Broadcom, maker of semiconductors for wireless headsets agreed to settle its suit with shareholders for $160.5 million. Under the terms of the settlement, all charges against officers and directors of the company will be dismissed and the company admits to no wrongdoing. This settlement is second only in size to that paid by United Health Group in 2008, for $895 million over its own investor allegations of backdating stock options.
Broadcom investors sued the company officers over the alleged backdating of stocks. "Backdating" is the practice of changing dates on the grants of stock options given to employees to a day (other than the actual grant date) when the share price was relatively low. When the stock holder decides to sell his or her options, they can realize a greater profit than they might have had the share price been higher. Backdating is illegal in part, because it can allow a company to over-report earrings and under pay taxes.
The lead plaintiff, the New Mexico State Investment Council, is pleased with the settlement. "This result is great news for the state of New Mexico and the thousands who were affected," said New Mexico Attorney General, Gary King. However, the state will continue to pursue claims against Broadcom's outside auditors.
Securities fraud charges were also brought against Henry Nicholas, co-founder and former CEO of the company and the former CFO William Ruehle. Co-founder and former chair Henry Samueil pled guilty to lying to regulators about his own role in the option grants. On December 15, a federal judged dismissed the charges against Ruehle and Nicholas due to witness intimidation by the prosecution. Samueli's plea was vacated when U.S. District Judge Cormac Carney found that his misstatements were not material to the case.
As much as the company would like to put the case behind them, they will continue to pay out legal fees in the defense of a separate investor suit also naming Ruehle, Nicholas as Samueli defendants and which is on-going.
- Broadcom to Pay $160.5 Million, End Backdating Suits (Business Week)
- Broadcom to Settle Backdating Suit for $160 Million (New York Times)
- Proving Securities Fraud (FindLaw)
- White Collar Crime (provided by Leventhal & Slaughter, P.A.)
- Securities Laws (provided by The Bell Law Firm PLLC)