Henry Samueli, after whom the School of Engineering at UC Irvine is named, pleaded guilty to a felony charge of lying to the United States Securities and Exchange Commission about his role in backdating employee stock option grants for his company, Broadcom Corporation. Judge Cormac Carney accepted Samueli’s plea on June 23 and sentencing will officially take place on August 18.
An option allows a potential stockholder to buy stock at some point in the future at a set price. In backdating employee stock option grants, Samueli was involved in modifying this set price for recruited employees. Backdating allows current stock to be purchased at prices from days when the company’s stock had a low price, allowing instant stock profits with the illusion of gradual stock value appreciation.
Samueli committed the felony in a deposition he gave on May 25, 2007 in which he claimed that he was aware that backdating of employee stock option grants was occurring, but did not participate in said activity. However, his claim was proved false when it was discovered that in a January 2002 e-mail, Samueli had told a Broadcom official to grant options to executives at a backdated price.
For his crime Samueli is expected to pay $12 million for the felony with an additional fine of $250,000.
Samueli has not been the only Broadcom official charged with a felony: Henry Nicholas III, who co-founded Broadcom with Samueli, has had two criminal cases brought against him. The first criminal case, like Samueli’s, involved backdating employee stock option grants; the second dealt with drug distribution, which has no connection with Samueli. Samueli is not expected to face jail time, but Nicholas, who was named in a separate indictment from Samueli, may face up to 340 years in prison.
Henry Pontell, who is a professor of criminology, law and society at UCI, commented that it was not clear why Samueli was indicted apart from Nicholas.
“Why was there a separate indictment? … That’s what I didn’t understand … it could be a real simple explanation, but I don’t get why [Samueli] wasn’t named with these other defendants,” Pontell said.
Pontell went on to express that Samueli’s punishment may be inconsequential to him, given his immense resources compared to Nicholas’ far graver circumstances.
“[Samueli] has to pay a $12 million fine, which is about the equivalent of any of us being charged $3 for a parking ticket,” Pontell said.
Outside of financial penalties, Samueli has also stepped down as chairman of Broadcom since the allegations arose and has been replaced with John Major, a prominent businessman based in California.
According to Gil Geis, a professor emeritus at UCI who specializes in white-collar crime, regardless of Samueli’s reasons for stepping down, he would have likely been removed from his position due to the extent of his actions.
“Samueli’s resignation should have no effect on how the prosecution proceeds. He undoubtedly would have [been] fired anyway by [Broadcom’s] board of directors,” Geis said.
It is unknown how Samueli will rebound from this case, but according to a statement made by Major in an Orange County Register article, the company will continue “without missing a beat.”
Geis agreed with Major’s comment using a utilitarian example: if a person’s favorite toothpaste was produced by a company convicted of an antitrust conspiracy, the individual would not likely change their taste in toothpaste.
“The evidence is rather strong that companies survive quite well ‘without missing a beat’ despite felonies by their officers. It all depends on the current stability and profitability of the corporation,” Geis said.
Pontell agreed that Broadcom will not suffer too much backlash from Samueli’s felony. Yet, Pontell also noted that Samueli’s crime should not be viewed through rose-tinted glasses.
Pontell went on to cite how public opinion generally was suspect of corporate practices following the Enron business scandal of the early 2000s, but that since that time, such crimes have stopped arousing suspicion.
“It’s almost like we’ve gone back to a pre-Enron perception of this kind of behavior. Just because everybody’s doing it doesn’t justify it, or make it any less serious,” Pontell said.
As Samueli will now be a convicted felon whether the Henry Samueli School of Engineering at UCI continues to bear his name remains questionable. However, according to Pontell, Samueli has been a great philanthropist and major donator to UCI, making it unlikely that UCI officials will change the school’s name.
According to an article written for the Los Angeles Times, to date, Samueli and his wife Susan have donated more that $200 million to educational institutions and the arts, including a $20 million gift to the School of Engineering at UCI, which prompted the School’s renaming in Samueli’s honor.
According to Gloria Anebere, a third-year chemical engineering major, who represents the School of Engineering on the Legislative Council of the Associated Students of UCI, whatever penalty Samueli faces has no bearing on the School of Engineering itself.
“Even though his name is on our school…I wouldn’t really know how it would affect it negatively just because I feel the faculty and curriculum is what makes the school,” Anebere said.
Anebere went on to summarize the school as a community that helps prepare students for life after college.
“The curriculum is really well-planned in accordance to what we need to know, especially in today’s world,” Anebere said.