Risk Management

Problems Broaden for Ex-Broadcom Chief

To its stock-option-backdating woes, a former bodyguard of billionaire Broadcom co-founder H.T. Nicholas adds allegations of providing drugs and pr...
Roy HarrisJuly 16, 2007

Broadcom Corp. co-founder and ex-CEO Henry T. Nicholas III may be thinking back to the good old days when his only problem was dealing with a federal probe of alleged stock-options backdating . On Friday, reports circulated widely about an ex-employee’s lawsuit claiming that the billionaire’s leadership of the semiconductor maker was a time of frequent drug use in the office and the hiring of prostitutes for clients.

Legal documents in the suit filed by Kenji Kato, who said he was Nicholas’ bodyguard and personal assistant for seven years, according to the Associated Press, were filed on May 10 in Los Angeles County Superior Court. AP said Kato seeks $3 million in settlement money, plus unspecified damages related to his 2006 resignation from the Irvine, Calif., company.

According to the Los Angeles Times, Kato alleged that Nicholas required him to oversee supplies of cocaine and other drugs, to pay prostitutes from a company petty-cash fund, and to keep Nicholas’ wife and others from learning about the “extracurricular activities” of the boss. Kato said that Nicholas secretly spiked drinks of business associates with drugs and orderd aides to fill balloons with laughing gas to entertain party guests.

Both the Times and the Wall Street Journal carried major stories on the case. A lawyer for Nicholas did not return a call from CFO.com on Monday. But the Times said that in two meetings with the newspaper last week, he told the paper that he had been counseled not to discuss the stock options probe or the civil suit’s allegations. He said that Kato had a drug problem when he worked with Nicholas at a previous job, at music and media company Level 7.

The Los Angeles paper also quoted a statement from Nicholas saying: “These absurd allegations seem to be intended to disrupt the principal focus of my work, post-retirement, which would be in criminal justice and medical research.”

The two newspapers also said that material from the civil suit is being viewed by federal investigators in their continuing study of Broadcom. In a filing several months ago, Broadcom said that it had produced documents in response to grand jury subpoenas, and that the company was cooperating as federal authorities interviewed current and former employees.

In January 2006, Broadcom took a $2.26 billion charge to correct for improperly recorded stock options between 1998 and 2005, and mainly blamed Nicholas, former CFO William J. Ruehle, and human-relations vice president Nancy M. Tullos. The company later said it had received a formal request from the Securities and Exchange Commission staff for information, and a subpoena of records.