Drug and sex offences add to backdating charges for ex-Broadcom chief

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.