Fraud charges dropped

Here's another example of how hard it is to prosecute white collar cases. A federal judge this morning dismissed the charges against Broadcom co-founder Henry Nicholas III and CFO William J. Ruehle in connection with the alleged backdating of stock options. A week earlier, U.S. District Judge Cormac Carney dismissed the conviction of the OC company's co-founder, Henry Samueli. From the LAT:

Carney ruled that prosecutors had improperly intimidated witnesses, tainting their testimony and making the case "a mockery of justice." He said the government's conduct in the case was "shameful." The judge scheduled a Feb. 2 hearing to consider whether he should consider narcotics distribution charges against Nicholas -- the only remaining charge in the case.

Ruehle's attorney says that accounting errors may have occurred, but there was no intent to deceive shareholders. Making a conviction even less likely were leaks to news organizations by Assistant U.S. Attorney Andrew Stolper. Earlier this year, a federal appeals court overturned the conviction of Gregory L. Reyes, former CEO of Brocade Communications Systems, on charges related to backdating stock options. That had been the first major conviction of a corporate executive in a backdating case.

What's backdating?: A company retroactively changes the grant date of options, usually to a day when the stock was at a low price, so that the recipient can receive a greater return. Backdating is not necessarily illegal, but the practice must be reported, which it often wasn't.