Henry T Nicholas III is the billionaire co-founder of Broadcom,
the computer chip manufacturer which last year undertook the
biggest ever earnings restatement because of stock option
backdating when it wrote down $2.2 billion of profits.
Last week a whole new set of claims made by the Department of
Justice last October were unsealed in a California court. They
allege that Nicholas took and supplied drugs, including ecstasy,
cocaine and methamphetamine, commonly called crystal meth.
He is said to have told one employee to pay a drug deliverer up
to $10,000 in cash in the technology firm's lobby, and to have paid
another ex-employee $1 million not to reveal details of his drug
use.
They said that Nicholas's several homes, which included
underground rooms reached by tunnels and a furnished warehouse with
private rooms, were used for drug parties.
The indictment also claims that Nicholas hired prostitutes for
himself and customers of Broadcom and that he supplied the
prostitutes with drugs.
In one claim made in the court papers Nicholas is said to have
spiked executives' and customers' drinks with the drug ecstasy.
In one incident recounted in the indictment Nicholas is alleged
to have smoked so much marijuana on a private plane flight to Las
Vegas that the smoke and fumes reached the cockpit, where the pilot
is alleged to have had to use his oxygen mask.
Forbes last year estimated Nicholas's wealth at $2.3 billion. He
is accused of operating a 10-year stock option backdating fraud
from 1995 to 2005. The company's former chief financial officer
William Ruehle is also accused of being engaged in the scheme.
The backdating of stock options is not illegal in itself, but
becomes so when it happens without the knowledge or consent of
company shareholders.
Stock options are the right to buy shares in a company in the
future at today's price. If the company's share price rises, owners
of options can keep the difference and if it falls they are not
obliged to exercise the options by buying the shares.
Backdating involves changing the date of option issue after the
fact to a date when the share price was lower, thus increasing the
profit enjoyed by the option holder.
A number of technology companies have been caught up in
backdating scandals but Broadcom's earnings re-statement is the
largest so far to be caused by an options scheme.
Nicholas yesterday pleaded not guilty to the drug and securities
charges against him. A trial has been scheduled for 29th July.
