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Prosecution scores in legal wrangling ahead of Broadcom options trial

September 30, 2009 | 12:43 pm

Federal prosecutors today won a legal victory in their stock options backdating case against former Broadcom Corp. Chief Financial Officer William J. Ruehle.

The 9th U.S. Circuit Court of Appeals ruled that the U.S. attorney’s office could introduce statements that Ruehle had made to company lawyers about the alleged backdating scheme. Ruehle is scheduled to stand trial beginning Oct. 20 in federal court in Santa Ana.

The opinion reverses a decision earlier this year by U.S. District Judge Cormac J. Carney, who said the statements to the company lawyers were protected by the attorney-client privilege and would not be admissible at trial.

In June 2008, a federal grand jury indicted Ruehle and Broadcom co-founder Henry T. Nicholas III on charges of conspiracy and securities fraud. The indictment accused Ruehle and Nicholas of secretly backdating options from 1999 to 2005 to enrich certain employees of the Irvine chip manufacturer.

Today’s opinion focused on Broadcom’s decision to retain the law firm Irell and Manella in 2006 to investigate its stock option grants, which had become the focus of media scrutiny.

The firm’s review -- which included interviews with Ruehle -- prompted the company to restate its earnings in January 2007 and report $2.2 billion in previously undisclosed compensation to employees.

Federal prosecutors launched an investigation after the restatement and interviewed Irell attorneys regarding their prior conversations with Ruehle.

Ruehle claimed that he believed his statements to the lawyers were protected because they were working for his employer.

The appeals court disagreed, noting that Ruehle knew the lawyers would disclose the statements to an outside accounting firm. "That he might regret those statements after later learning of the subsequent corporate disclosure to law enforcement officials is not material," the opinion said.

-- Stuart Pfeifer

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