For Nicholas, hard times in Newport Beach and Malibu

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File this one under the heading ‘Hard times in Newport Beach.’ From L.A. Times staff writer E. Scott Reckard:

Ripples from the shipwrecked housing markets are washing up in unusual places, including criminal proceedings for a microchip billionaire.

Soft home prices in Newport Beach and Malibu figured in arguments last week before the federal judge in Santa Ana who was deciding whether to grant bail for Henry T. Nicholas III, the 48-year-old co-founder of Irvine’s Broadcom Corp.

Nicholas had surrendered Thursday to the FBI to face charges of distributing illegal drugs to associates and defrauding Broadcom shareholders by manipulating stock options. Arguing before U.S. Magistrate Judge Arthur Nakazato, prosecutors contended he was a flight risk and a threat to the community, and so should be locked up.

Nakazato indicated he would allow bail. But what is an appropriate bond for an electrical engineering Ph.D. and entrepreneur who, by the government’s estimate, is worth $1.5 billion?

Defense lawyer Gregory Craig offered to pledge an estate Nicholas owns in a gated Newport Coast neighborhood looking out past a golf resort to the Pacific Ocean and Santa Catalina Island.

Entangled in a messy divorce, Nicholas had bought the home from St. John Knits founders Robert and Marie Gray in November 2006 so his three children could visit him on weekends. (His wife, Stacey, had objected to them visiting another Newport Coast mansion that Nicholas owns, where he enjoyed entertaining rock musicians.)

Nicholas paid $19.5 million for the Grays’ estate in November 2006, property records show. It now may be worth as little as $15 million, Craig said –- a decline of 23% from what Nicholas paid.

Of course, Nakazato mused, losing a $15-million home would be of little consequence to “obviously one of the wealthiest individuals in the world.” So he ruled that Nicholas didn’t have to pledge his house so long as his supporters, several of whom sat looking on, would put up their property to secure his bond.

“I want to be sure that if he flees, he’s going to be hurting these people who have come here to help him,” Nakazato said.

Principal among those was Nicholas’ mother, Marcella Nicholas Leach, who offered a home in Malibu where Nicholas grew up. She estimated the house had once been worth as much as $3 million, although the attorneys told Nakazato its current value was about $2.1 million.

“Maybe we should make it $2 million,” Nakazato said. “We all know how real estate has fluctuated in California.”

He called Nicholas’ mother before him, asking whether she realized that if her son failed to abide by the conditions of his release, “you’ll probably lose the property.”

Yes, she replied.

Nakazato ruled that she had pledged $2.1 million in home equity. He ordered Nicholas confined to a Malibu drug treatment center, with random drug tests and an “electronic leash” to monitor his whereabouts.