For updated news on this story read part two of this story here.
With the Anaheim Ducks organization worrying about prospects, veterans considering retirement, and contract issues with players this offseason, owner Henry Samueli is worrying about the justice system. Nicholas III, his former engineering student at UCLA. Ruehle is just as unlucky—Broadcom’s former CFO (chief financial officer) has been indicted on the options charges as well. Samueli’s plea agreement, expected to be filed later today, will not require the him to testify on behalf of the government.
Whether that was the case at Broadcom, I cannot be certain. In 2005, the practice of issuing options using hindsight was the subject of a journalistic anti-business frenzy.
Such retrospective pricing of options was termed “backdating” by the media, a term that Ruehle says he had never heard until the media adopted it.
But as Broadcom was a major company, and as both of its famous co-founders were apparently going to be targeted, the case was still worth a page one story.
Like so many recent muckraking stories, this one opened “dramatically,” with an email taken out of all context.
Working with another accounting professor, Randall Heron, Lie then demonstrated that once executive options could no longer be granted using hindsight, following a change in regulations, their consistent profitableness disappeared.
Conclusion: the profitableness had resulted from backdating.
That, of course, was exactly the technique by which Eliot Spitzer had distorted the actions of his victims, again and again, to the delight of the press.
And that was the technique used most famously by prosecutors to distort the behavior of Frank Quattrone and make it seem criminal. Editors and readers and judges and juries need to say about any email taken out of its full context what archeologists say about an artifact taken out of its full context: It tells us nothing. Immediately following the three paragraphs quoted above, the authors repeated the nonsensical allegation that such backdating “violated the rationale of stock options.” But how could the reporters know that?
The WSJ story that defamed him and his Broadcom colleagues was not printed until February 16, 2007.