Success, good deeds tainted by scandal

Freedom New Mexico

So what are we to think of Broadcom co-founder Henry Samueli now that he has pleaded guilty to making a false statement to Securities and Exchange Commission investigators, and been suspended from involvement with the Anaheim Ducks, which he and his wide bought in 2005?

On the one hand, Samueli is a now a convicted felon. On the other, he has been an entrepreneur who made his money in the most commendable way — not by inheriting it or having a sweetheart relationship with government agencies, but by using his scientific knowledge and business acumen to help develop new products and sell them on the open market to willing and eager buyers. (Broadcom makes chips used in iPhones and Wii game consoles.)

Having made a fortune estimated around $2 billion, he and his wife have donated more than $180 million to civic and charitable causes.

Are those good works irremediably tarnished by his troubles with the law, which may not be over?

In one sense, Samueli’s troubles remind us of the Martha Stewart case, where she was convicted of lying to investigators about financial transactions over which she was never charged with violating a law.

But there is a case to be made that the transactions Samueli may have been involved with (and over which his co-founder Henry Nicholas has been charged with more substantial crimes) did have the effect of hiding from shareholders some of Broadcom’s liabilities.

Broadcom attracted top talent in part by offering them stock options, which are the right to purchase stock in the company at the price at which it traded on a certain day. If the stock was at a low price that day and at a higher price on the day the option is exercised the company employees involved get an instant profit.

The allegation is that Nicholas improperly backdated stock options to achieve maximum money for top executives, and in the process hid some $2.2 billion in compensation costs from stockholders and potential stockholders.

Samueli admitted to lying to investigators about how much he was involved in that process, but he wasn’t charged with the underlying crime. Did prosecutors threaten more serious charges they might or might not have been able to prove in order to get a plea bargain that involves collecting some $12 million from Samueli in fines and penalties?

If that sounds confusing, it is in part because the laws governing corporate governance are often ambiguous and confusing. On the surface it looks as if Broadcom was slipshod in the way it handled stock options, but it’s unclear whether what it did was actually illegal. Broadcom co-founder Nicholas and Broadcom’s former chief financial officer William Ruehle have pleaded not guilty to charges of improper backdating.

We’re disappointed that what appeared to be one of the nation’s premier business success stories has been tarred by this scandal and that such a civic-minded and generous person appears to have made such important mistakes.

But we’re withholding final judgment as we watch the rest of this tragic story play out.