- The Washington Times - Wednesday, December 16, 2009

SANTA ANA, Calif. | A federal judge Tuesday dismissed fraud and conspiracy charges in the stock-option backdating case against Broadcom Corp. co-founder Henry T. Nicholas III and former Chief Financial Officer William Ruehle because of prosecutorial misconduct.

U.S. District Judge Cormac J. Carney also asked prosecutors to explain why a separate drug indictment against Mr. Nicholas should not also be thrown out, and he dismissed a civil case the Securities and Exchange Commission filed against four Broadcom executives.

The stunning move came after Judge Carney last week vacated a guilty plea by Broadcom co-founder Henry Samueli in the same case after hearing him testify for two days as a defense witness for Mr. Ruehle under a grant of immunity.

Judge Carney found that prosecutors tried to prevent three key defense witnesses from testifying, improperly contacted attorneys for defense witnesses and leaked information about grand jury proceedings to the media.

“I find that the government has intimidated and improperly influenced the three witnesses critical to Mr. Ruehle’s defense, and the cumulative effect of that misconduct has distorted the truth-finding process and impeded the integrity of the trial,” Judge Carney said. “To submit this case to the jury would make a mockery … of the constitutional right to due process and a fair trial.”

The judge said Mr. Nicholas would need the same three defense witnesses to try to prove his own innocence in a trial scheduled for February, and because of that, the judge said, he, too, could not receive a fair trial.

Prosecutors left court without talking to reporters, but acting U.S. Attorney George Cardona told the judge he did not agree with the ruling. Prosecutors can appeal the dismissal of Mr. Nicholas’ indictment, but Mr. Ruehle cannot be tried again because it would be double jeopardy.

Backdating involves retroactively setting a stock option’s exercise price to a low point in the stock’s value, boosting profits when the shares are sold. It is legal when properly accounted for; but if not properly disclosed, it can allow companies to overstate profits and underpay taxes while diminishing shareholder value.

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