Former Broadcom executive emerges intact from options scandal

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"That's when we exhaled," Ruehle says.

Yet did that outcome invalidate the whole regulatory attack on options backdating, as corporate America argues? There's evidence that regulators put important cases involving accounting irregularities on the back burner to go after the hot subject of options backdating. And it's also true that by 2006, when the investigations began, Sarbanes-Oxley reporting rules had eradicated backdating anyway. A paper this year by law professors at New York University and the University of Michigan suggests that the government wasted precious resources on backdating cases, orphaning potentially more important investigations.

"It's pretty clear they were chasing down a lot of smaller cases with potentially lesser impact toward the end of their cycle of investigation," says Adam C. Pritchard of Michigan, one of the authors. "Accounting frauds, insider trading, Foreign Corrupt Practices Act — we don't know what didn't get investigated. But they only have so many attorneys."

The options cases, on the other hand, did slake the public's thirst for action. "They have greedy executives, dishonesty — that's a combination that plays well both with Congress and certainly got a lot of attention from the press."

The options cases were themselves selective and seemingly random. For example, Apple's late chief executive, Steve Jobs, was never threatened with prosecution, despite evidence that he had known about his company's backdating and had received some of the grants at issue himself.

There were successful prosecutions of other executives in connection with options backdating, including Brocade Communications CEO Gregory Reyes and Monster Worldwide Chief Operating Officer James Treacy, who both eventually did time.

Ruehle defends Broadcom's options reporting by noting, "accounting is not an exact science." This is true, but it's not entirely random, either.

"Companies were playing fast and loose with the rules," observes Peter J. Henning, an expert in white-collar crime at Wayne State University law school. "There's no way you can say, 'We're backdating and that's completely permissible.'"

At many companies, the backdating resulted in materially misleading profit and loss reports, and in a securities regulatory system where accurate disclosure is the goal, that's a big problem.

Still, the financial reporting principles left some room for interpretation at the time, and it's fair to say that the dating of option grants at Broadcom became very complicated for entirely innocent reasons. The practice may have risen to deliberate fraud at some companies, but it's hard to put Broadcom in that category, especially since the government wasn't claiming that its executives were primarily out to line their own pockets.

Remarkably, Ruehle emerged from his trial by fire uncynical. "I came away with the feeling that that system is imperfect," he says, "but not the feeling that it's horrible and needs wholesale changes. It depends so much on individuals, and maybe some individual prosecutors got overzealous. But the truth came out, and the judge saw it."

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.

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