On September 29, 2008, Federal Judge Cormac Carney rejected a proposed plea deal that would have given probation to Broadcom Corp. co-founder Henry Samueli. Samueli previously plead guilty to one felony count of making a false statement to the SEC. The Court's decision permits Samueli to withdraw that guilty plea.
Samueli is also listed as an unindicted co-conspirator in the federal indictment of Broadcom co-founder Henry T. Nicholas III, the company's former CEO, and William Ruehle, its former chief financial officer.
In his ruling, Carney noted that Nicholas and Ruehle, if convicted, could theoretically be sentenced to more than 300 years each in prison. Carney pointed out that people convicted in run of the mill fraud cases serve on average 17 months in prison. Carney also relied on the U.S. Probation Office's report that concluded probation was insufficient and recommended Samueli spend a year in prison.
Carney's ruling suggests that he agrees with the Probation report's conclusion that Samueli deserves to go to prison for lying to regulators about his role in an alleged $2.2-billion stock-option scam.
Carney rejected the plea deal for several reasons. The Judge believed that a significant prison sentence was warranted if the allegations are true. Judge Carney also criticized an unusual provision in the proposed plea. The provision called for Samueli to pay $12 million to the government even though the maximum fine permitted for the charge to which Samueli agreed to plead guilty is $250,000.
Judge Carney was not willing to accept a plea agreement that gives the impression that justice is for sale. He was concerned the payment provision would erode the public's trust in the fundamental fairness of the justice system.
Although it may be rare for a federal judge to reject a prosecution deal with a defendant, rejections have occurred more often recently.
Judge Carney, for example, sentenced money manager James P. Lewis Jr. to 30 years in prison. Mr. Lewis, who is 62 years old, has 22 years remaining on that sentence. Clearly Mr. Samueli, who is 53, would prefer to avoid a similar draconian result.
But there are few options available to white collar defendants when judges begin rejecting plea deals worked out with prosecutors. Who knows what the result would have been if Samueli had agreed to pay the $12 million as restitution, rather than as a fine?
Samueli is a defendant in an SEC lawsuit that says Broadcom's $2.2-billion understatement of compensation expense because of backdated options was the largest among a host of such cases the SEC looked into.
Judge Carney's ruling indicates that Samueli will spend some time in prison. This is no different than the fate of most federal white collar defendants.
