William Ruehle, Ex-Broadcom CFO, Shares His Amazing Government Persecution Story at UCI
The fabless semiconductor company has long enjoyed a special relationship with UC Irvine. Not only can you hit the corporate headquarters with a rock thrown from the outer edge of the campus near the 73, but the school of engineering is named after Broadcom co-founder Henry Samueli, who, along with his wife, established UCI Center for Integrative Medicine. Henry T. Nicholas III, the other Broadcom co-founder, has supported UCI's engineering school, Center for Pervasive Communications and Computing and Center for Embedded Computing Systems, and he established the Nicholas Prize that recognizes innovative collaborative research.
So what better place is there than a campus seminar room for Ruehle to rather dispassionately detail the hell his life went through, something he covers more extensively in his book, Mr. Ruehle, You Are a Free Man: My Fight for Justice? (Click here to watch the lecture online.)
On July 14, 2006, when the Tyco, Enron and Worldcom collapses were still fresh in everyone's minds, Broadcom announced it had to subtract $750 million from earnings due to stock-options irregularities. Two months later, the total doubled to $1.5 billion, and on Jan. 24, 2007, Broadcom announced a restatement of its financial results from 1998 to 2005 that totaled $2.22 billion. The financial world later coined a term for this: "backdating."
Broadcom was a company that used stock options as incentives to all employees, including its founders and CFO, so the backdating did not sit well with investors watching values sink. In May 2008, Samueli resigned as chairman of the board and took a leave of absence as chief technology officer after being named in a civil complaint by the U.S. Securities and Exchange Commission (SEC). The following month, Nicholas and Ruehle were indicted on charges of illegal stock-option backdating. (Nicholas was also indicted for violations of federal narcotics laws, allegations that also entered divorce proceedings that included claims he kept a sex dungeon on his estate.)
The outrageous allegations stood in stark contrast to Ruehle's words and demeanor while addressing the law students. He described multibillion-dollar Broadcom as "a very successful company" that took off shortly after he joined the then-6-year-old concern in 1997. The backdating warning report by Iowa business professor Erik Lie did not gain immediate traction, nor did a Wall Street Journal article based on the research. It was when a watchdog group later used the phenomenon to name 100 companies that may be up to no good that things went south for Broadcom, which made the list. Brokerage analysts and the SEC, then led by Chris Cox--who, as a congressman, represented a district that included Irvine--then piled on.
The resulting federal indictments, Ruehle said, made Broadcom out as the perpetrator of the "biggest crimes of all time." But he accused the crime fighters of looking at actions by the company that were perfectly acceptable when they happened through the prism (and new protection laws) of the post-Enron/Worldcom world. Hundreds of other companies also restated expenses and only a small percentage were prosecuted for wrongdoing, Ruehle noted.
He called Santa Ana-based federal prosecutor Andrew Stolper a minor player in the Enron case who decided to make Broadcom his Enron. Rather than building a case based on hard facts, Ruehle claimed, Stolper and his team hounded lower-level Broadcom officials to rat out "a couple of sacrificial lambs" to avoid being prosecuted or receive lighter sentences themselves.
Why Ruehle found himself on the wrong end of the strategy puzzles him because he claims he actually kicked off the investigations by immediately gathering and turning over to company attorneys all the financial information he could, under the belief Broadcom had done nothing wrong. Actually, that would wind up being some of the evidence used by federal prosecutors to try to hang him. That tactic by the feds also helped keep Ruehle out of the noose, but we're getting ahead of ourselves again.
It was under the advice of counsel that, Ruehle says, he left Broadcom before he, Nicholas, Samueli and company attorney David Dull were ultimately indicted. In the months before that happened, Ruehle says, he never talked with prosecutors, something that was later portrayed as not cooperating with the good guys. He was offered plea deals that could have sent him to federal prison for 10 years, but "I said, 'No, why would I do that?'" This flew in the face of most white-collar-crime cases, with defendants pleading guilty before trial 80 percent of the time. Of the 4 percent who choose to go to trial, 81 percent are ultimately found guilty, according to Ruehle, who said without emotion, "The odds are pretty awesome against you."
|Henry T. Nicholas III|
The former Broadcom official actually looks back at everyone he encountered during the prosecution--other than the prosecutors--of being friendly and professional. He ultimately would find not a greater champion than Carney, a "pretty colorful guy" who followed up a stellar receiving career with the UCLA Bruins football team with a year on the USFL's Memphis Showboats. Carney was later invited to the San Francisco 49ers camp, but the team that year also drafted a receiver named Jerry Rice, so the future judge accepted an offer from Harvard Law instead. He would receive judicial appointments from a despised governor and president -- Gray Davis and George W. Bush, respectively -- but Ruehle still regards Carney as "a wise man."
That's because Carney could see through a bullshit case.