Judge dismissed charges In Broadcom case because of pressure on witnesses

Citing misconduct by prosecutors, a federal judge dismissed criminal charges in a stock-options backdating case against two former execs of chip-maker Broadcom. The decision marks the latest setback for the government as it attempts to hold executives accountable for a widespread compensation practice in the early 2000s.

Broadcom co-founder Henry Nicholas III, and former CFO William Ruehle had been accused of playing a role in a stock-options backdating scandal that led Broadcom to record $2.2 billion in backdating-related expenses it should have taken when the options were granted between 1998 and 2003.

Backdating involves retroactively setting the price of a stock option to a low point in the stock's value, allowing employees to reap higher profits if the stock is later sold.

In dismissing the charges in the Broadcom case Tuesday, U.S. District Judge Cormac Carney said the government behaved improperly by pressuring witnesses to testify in a manner favorable to prosecutors.

The U.S. Attorney's Office in Los Angeles denied in court papers that it unfairly pressured witnesses. "We are disappointed in the ruling," said a spokesperson for the office.

In a related development, Judge Carney last week voiced concern that Andrew Stolper, a prosecutor in the case, had committed misconduct in February 2007 by leaking information to the press as a way to exert pressure on another defendant, Broadcom co-founder Henry Samueli.

Samueli last year pleaded guilty to making a false statement to the SEC in connection with the agency's investigation of options backdating at Broadcom. But at a Dec. 9 court hearing, Judge Carney determined there was insufficient evidence that Mr. Samueli had committed the crime.

Broadcom was one of the most prominent companies caught up in the backdating scandal. Last year the company paid $12 million to settle civil allegations by the SEC that it misrepresented the dates of as many as 88 stock-option grants to executives and employees.

In a separate indictment against Nicholas in 2008, prosecutors alleged that he engaged in a pattern of drug use and abuse over a nearly seven-year period. Citing the concerns about the government pressuring witnesses, Judge Carney set a hearing date in February to determine whether the drug charges against Nicholas should also be dropped. (info from The Wall Street Journal)