Friday, January 25, 2008

Prosecutors Name Broadcom Co-Founders

Yahoo! Finance
SANTA ANA, Calif. (AP) -- Federal prosecutors on Thursday identified Broadcom Corp. co-founders Henry T. Nicholas III and Henry Samueli as "unindicted potential co-conspirators" in an investigation into the illegal backdating of stock options.

The revelation came as former human resources executive Nancy Tullos pleaded guilty to one count of obstruction of justice as part of the probe. Tullos struck a deal with prosecutors late last year and agreed to the plea in exchange for her cooperation in the case.

Hmm, I'm not sure what it means to be an "unindicted potential co-conspirator" and why they released their names. If you don't have enough to indict, then don't mention names. Maybe this was meant to put more pressure on Henry and Nick through bad PR.

Later, Nayebi wrote Tullos and Broadcom's shareholder services department, angry that his hire date was listed as May 28, 1999 -- making his stock options $7.37 more expensive per share than the May 25 hire date, the documents state.

Nayebi wrote that he and a high-level executive, who was revealed Thursday to be Nicholas, had an agreement that the options would be granted on May 25 with the lower exercise price, according to court documents.

Broadcom's shareholder services department wrote him back, saying they would not change his hire date, but Tullos intervened, the documents state.

Tullos later learned that Broadcom's options committee granted the engineer 120,000 options on the more advantageous date of May 25. The total difference in price for those shares between the two dates was more than $880,000.

This Nayebi guy is no longer at Broadcom (he was only here for 20 months) but let's do the math. At Broadcom, you vest 1/4 of your initial stock options after one year. Broadcom's stock price on 5/25/1999 was $88.37 ($95.75 on 5/28/99). Assuming he sold all vested option one year later on 5/28/2000, the stock price was $233. However, since there was a 2:1 stock split in February, his option price would be $44.185 and he would have 240,000 options. Multiplying the stock price gain by 60,000 options, it comes out to $11.3M, pre-tax. If he got lucky and sold at the high of ~$274 in August, then it would have been ~$17M.

Sigh... none of this really applies to me since I vested underwater and I couldn't exercise options until 3 years after I was hired.

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