(1) william j. ruehle’s notice of motion and motion for ... · skadden, arps, slate, meagher...

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WILLIAM J. RUEHLE’S NOTICE OF MOTION AND MOTION FOR JUDGMENT OF ACQUITTAL;

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; No. SACR 08-139-CJC

RICHARD MARMARO (Bar No. 91387) [email protected] JACK P. DICANIO (Bar No. 138782) [email protected] MATTHEW E. SLOAN (Bar No. 165165) [email protected] MATTHEW DONALD UMHOFER (Bar No. 206607) [email protected] SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071-3144 Tel: (213) 687-5000 Fax: (213) 687-5600

Attorneys for Defendant William J. Ruehle

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

SOUTHERN DIVISION

UNITED STATES OF AMERICA, Plaintiff, v. WILLIAM J. RUEHLE, Defendant.

CASE NO. SACR 08-139-CJC (1) WILLIAM J. RUEHLE’S NOTICE OF MOTION AND MOTION FOR JUDGMENT OF ACQUITTAL PURSUANT TO FEDERAL RULE OF CRIMINAL PROCEDURE 29; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; FILED UNDER SEPARATE COVER:

(2) DECLARATION OF MATTHEW E. SLOAN IN SUPPORT THEREOF; and

(3) [PROPOSED] ORDER.

Judge: Hon. Cormac J. Carney Trial Date: October 20, 2009 Hearing Date: December 15, 2009 Time: 9:00 a.m.

Case 8:08-cr-00139-CJC Document 779 Filed 12/14/2009 of 35

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TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:

PLEASE TAKE NOTICE that William J. Ruehle hereby moves for a

judgment of acquittal, pursuant to Federal Rules of Criminal Procedure 29(a), on the

grounds that the prosecution has failed to introduce sufficient evidence to prove that

defendant is guilty beyond a reasonable doubt of any of the counts charged in the

indictment.

The Motion is based on this notice, the memorandum of points and authorities

attached hereto, the testimonial and documentary evidence adduced at trial, excerpts

of which are attached to the declaration filed concurrently herewith, all matters of

which this Court may take judicial notice, and such other documents and argument

as may be presented to the Court.

DATED: December 14, 2009

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Richard Marmaro Jack P. DiCanio Matthew E. Sloan Matthew Donald Umhofer By: /s/ Richard Marmaro

RICHARD MARMARO Attorneys for Defendant WILLIAM J. RUEHLE


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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; No. SACR 08-139-CJC ii

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES....................................................................................iv

MEMORANDUM OF POINTS AND AUTHORITIES...........................................1

I. INTRODUCTION...........................................................................................1

II. FACTUAL BACKGROUND .........................................................................3

A. Broadcom’s Stock Option Program ......................................................3

B. Broadcom’s Option Program was Operated Openly and Transparently.........................................................................................4

C. Mr. Ruehle Relied on the Accounting Staff and Outside Professionals to Get the Accounting Right ...........................................6

D. E&Y Was Aware of Delays and Failed to Provide Proper Guidance................................................................................................7

E. Broadcom’s Accounting Errors Were Caused by a Good Faith Misapplication of Opinion 25 ...............................................................8

1. March 1, 2000 Grant...................................................................9

2. December 24, 2001 Grant.........................................................10

3. The July 3, 2002 Grant .............................................................11

F. Efforts to Improve the Process............................................................12

G. Broadcom’s Investigation and Restatement in 2006 through 2007....13

H. The Deficiencies of APB Opinion 25 Led to a Wave of Internal Investigations and Restatements in 2006 and 2007 ............................13

III. ARGUMENT.................................................................................................16

A. Rule 29(a) Requires the Court to Enter A Judgment Where the Government’s Evidence is Insufficient to Sustain a Conviction ........16

B. The Court Should Enter a Judgment of Acquittal As To All Remaining Counts of the Indictment Because the Government Has Failed To Present Sufficient Evidence of Criminal Intent ..........17


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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; No. SACR 08-139-CJC iii

C. The Government Has Failed to Present Sufficient Evidence to Prove That Mr. Ruehle Acted With the Intent to Defraud (Counts One and Two)......................................................................................18

D. The Government Has Failed to Present Sufficient Evidence to Prove That Mr. Ruehle Acted Willfully or Knowingly with Respect to Any of the Charges (All Counts) ......................................21

1. The Government Has Failed To Prove that Mr. Ruehle Made False Certifications of Financial Reports and False Statements in Reports Filed with the SEC (Counts Three to Seven and Nine)........................................................................25

2. The Prosecution Has Failed to Prove that Mr. Ruehle Made False Statements to Broadcom’s Auditors (Counts Ten Through Twelve) ......................................................................25

3. The Prosecution Has Failed to Prove That Mr. Ruehle Criminally Falsified Broadcom’s Books And Records (Counts Fourteen and Sixteen) .................................................26

IV. CONCLUSION .............................................................................................28


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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; No. SACR 08-139-CJC iv

TABLE OF AUTHORITIES

Cases Page(s)

Bryan v. United States, 524 U.S. 184, 118 S. Ct. 1939, 141 L. Ed. 2d 197 (1998) ......................................22

City of Westland Police & Fire Retirement System v. Sonic Solutions, No. C 07-05111 CW, 2009 WL 942182 (N.D.Cal. 2009) ......................................23

In re Sportsline.com Securities Litigation, 366 F. Supp. 2d 1159 (S.D. Fla. 2004) ...................................................................23

United States v. Bishop, 291 F.3d 1100 (9th Cir. 2002).................................................................................24

United States v. Capati, 980 F. Supp. 1114 (S.D. Cal. 1997), aff’d, 162 F.3d 117 (9th Cir. 1998)..............16

United States v. Cassese, 428 F.3d 92 (2d Cir. 2005)......................................................................................17

United States v. D’Amato, 39 F.3d 1249 (2d Cir. 1994)....................................................................................17

United States v. Delgado, 357 F.3d 1061 (9th Cir. 2004).................................................................................16

United States v. Dixon, 536 F.3d 1388 (2d Cir. 1976)..................................................................................21

United States v. Kelly, 888 F.2d 732 (11th Cir. 1989).................................................................................23

United States v. Milwitt, 475 F.3d 1150 (9th Cir. 2007).................................................................................18

United States v. Reyes, 577 F.3d 1069 (9th Cir. 2009).................................................................................22

United States v. Riley, 550 F.2d 233 (5th Cir. 1977)...................................................................................23

United States v. Steffen, 641 F.2d 591 (8th Cir. 1981)...................................................................................23

United States v. Triumph Capital Group, Inc., 544 F.3d 149 (2d Cir. 2008)....................................................................................17


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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; No. SACR 08-139-CJC v

Weiss v. Amkor Technology, Inc., 527 F. Supp. 2d 938 (D. Ariz. 2007).......................................................................23

Statutes

15 U.S.C. § 78ff ..........................................................................................................25

15 U.S.C. § 78ff(a)......................................................................................................22

Other Authorities

Fed. R. Crim. P. 29(a) .................................................................................................16

Ninth Circuit Model Criminal Instructions § 3.17 (Intent to Defraud) (2003) ............................................................................18


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MEMORANDUM OF POINTS AND AUTHORITIES

I. INTRODUCTION

In its opening statement, the government told the jury that this was a case about

how Mr. Ruehle and other high-level Broadcom officials conspired to cheat and

deceive Broadcom’s investors by intentionally failing to disclose billions of dollars in

stock option expenses. (10/23/09 RT 19, 28-29.)1 The evidence told a very different

story, however. It told a story of two visionary engineers who built one of the

greatest semi-conductor companies in the world right here in Orange County.

Founded in Dr. Nicholas’s Redondo Beach condominium, Broadcom has grown into

an industry leader that produces chips for Apple iPhones and Bluetooth headsets, and

employs more than 7,000 around the globe.

Far from the nefarious scheme the government alleged, the evidence showed

that Broadcom’s restatement resulted from accounting errors caused by the

misapplication of an accounting opinion that was widely misapplied throughout

corporate America in the late 1990s and early 2000s. There was no evidence that Mr.

Ruehle or anyone else at Broadcom acted with criminal intent to cheat or deceive

Broadcom’s shareholders or auditors. Nor was there any evidence that Mr. Ruehle

knowingly or willfully made false statements in, or omitted information from,

Broadcom’s public filings. To the contrary, even the government’s own witnesses,

Nancy Tullos and Carol Prado, who are alleged to have been at the heart of this

conspiracy, have admitted under oath that no one involved in the process thought

they were committing a crime or deceiving shareholders.

1 All exhibits are attached to the Declaration of Matthew E. Sloan (“Sloan Decl.”) and are filed concurrently herewith. The excerpts of trial transcripts are Exhibit 1, the RX (Ruehle) trial exhibits are Exhibit 2, and the GX (Government) trial exhibits are Exhibit 3 to the Sloan Declaration.


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The government’s proof is deficient on virtually every substantive element of

every count of the indictment.

Not a single witness has testified that he or she entered into an agreement or scheme with Mr. Ruehle to falsify Broadcom’s financial statements. Indeed, the government’s two cooperating witnesses – as well as Dr. Samueli and Mr. Dull, whom the government alleged were co-conspirators – have all denied under oath that they engaged in any scheme or conspiracy.

Not a single witness has testified that he or she acted with criminal intent to cheat or deceive Broadcom or its shareholders.

Not a single witness has testified that Mr. Ruehle knew or believed that Broadcom’s financial statements were false or misleading in any way, or that Mr. Ruehle ever directed them to falsify Broadcom’s financial statements.

Not a single witness has testified that Mr. Ruehle knowingly lied to Broadcom’s auditors, Ernst & Young (“E&Y”), or intentionally concealed information from them. Indeed, the testimony has established that Mr. Ruehle repeatedly urged the finance department to openly discuss issues with E&Y.

Mr. Ruehle established that Opinion 25 was widely misapplied throughout corporate America, causing 220 companies, including industry leaders such as Microsoft, Apple and Barnes & Noble, to restate or correct their financial statements.

Indeed, the government’s evidence was so deficient that it made strategic

charging decisions designed to render key witnesses – Dr. Samueli and Mr. Dull –

unavailable to testify for the defense. When Mr. Ruehle succeeded in obtaining

defense witness immunity for these witnesses, the prosecution first tried to tamper

with Mr. Dull’s testimony. Then, after both Dr. Samueli and Mr. Dull took the stand

and provided powerful, exculpatory testimony, the government performed a stunning

about-face, and tried to minimize their role in the options-granting process.

Given this record, and the disturbing actions the government took to pressure

witnesses and shape their testimony, no rational jury could find guilt beyond a


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reasonable doubt. This Court should accordingly grant a judgment of acquittal with

respect to all the remaining Counts brought against Mr. Ruehle.2

II. FACTUAL BACKGROUND

A. Broadcom’s Stock Option Program

The evidence established that the employee stock option program was an

essential part of its compensation philosophy and was operated at all times to further

the best interests of the employees and the shareholders. (11/5/09 RT 1419:21-

1420:2; 12/8/09 RT 4727:15-4728:11, 4730:18-4731:5, 4732:19-4733:20.)

Broadcom’s founders, Dr. Henry Nicholas and Dr. Henry Samueli, used options as a

mechanism to attract the best and brightest engineers from around the world.

(12/8/09 RT 4727:15-4728:12.) Rather than paying high cash salaries, Dr. Samueli

and Dr. Nicholas offered their employees generous options to encourage their

commitment to the growth and financial success of the company and make them co-

owners. (12/8/09 RT 4726:15-4727:14.)

From 1998 through January 2003, Dr. Samueli and Dr. Nicholas were the sole

members of the Option Committee (“OC”), the board committee authorized to grant

options to non-executive employees. (12/8/09 RT 4738:21-4740:15.) Dr. Samueli

testified that during that time period, Dr. Nicholas and he regularly had informal

meetings to grant stock options to employees. (12/8/09 RT 4743:12-4744:5, 4745:3-

4746:10.)

Mr. Ruehle had no formal role in the options process. He was not on the OC

and had no authority to grant options. (12/8/09 RT 4740:2-7.) Contrary to the

government’s argument that Mr. Ruehle unilaterally selected grant dates (10/23/07

2 At the Court’s request, this brief focuses solely on the government’s failure to prove criminal intent and does not address the government’s equally serious failure to prove that the alleged misstatements and omissions would have been material to a reasonable investor. Mr. Ruehle respectfully reserves his right to file a separate Rule 29 motion on the issue of materiality, if necessary.


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RT 57:3-8), Dr. Samueli testified that Dr. Nicholas and he selected all the grant dates

themselves. (12/8/09 RT 4761:20-4762:9.) Indeed, Dr. Samueli testified that he

would be “surprised” if Mr. Ruehle ever tried to select dates on his own as granting

decisions were under the exclusive control of the OC and it would be out of character

for Mr. Ruehle to try to “exceed his authority.” (Id. at 4762:7-9.)

B. Broadcom’s Option Program was Operated Openly and Transparently

From 1998 through 2003, the stock option program was hampered by delays

and administrative difficulties caused, among other things, by Broadcom’s rapid

growth and Dr. Nicholas’s procrastination in relaying granting decisions to Mr.

Ruehle. (See 10/27/09 RT 174:4-13; 12/9/09 RT 4870:14-23.) At all times,

however, Broadcom’s options program operated openly and transparently.

Emails about the option grants were broadly distributed among Broadcom

employees,3 and Broadcom’s outside lawyers and accountants were regularly

solicited.4 Broadcom’s auditors had offices on-site (12/9/09 RT 4992:8-4993:4), and

Mr. Ruehle encouraged members of the finance department to consult with E&Y on

options and other issues.5 Indeed, even Ms. Prado testified that experts, including

E&Y, were readily accessible to her, and neither Mr. Ruehle nor anyone else ever

sought to restrict her ability to discuss anything with them. (10/28/09 RT 280:22-

281:19.)

3 See, e.g., 12/8/09 RT 4778:2-4780:17 (Samueli); 12/9/09 RT 4880:3-13 (Samueli) (“We were very transparent and copied all the relevant people.”).

4 See, e.g., 12/8/09 RT 4771:12-21 (Samueli); 12/8/09 RT 4801:23-4802:7; 11/4/09 RT 1308:2-21, 1309:15-21.

5 See, e.g., RX 3255 (12/28/2000 email from B. Ruehle to S. Poteracki asking him to consult with E&Y regarding a business person’s idea to grant shares of an acquisition company to Broadcom employees); 11/10/09 RT 1992:17-1993:1.)


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The transparency of the options process is aptly demonstrated by Broadcom’s

open disclosures to E&Y about the delays in finalizing the May 26, 2000 focal grant.

The evidence presented reveals that Gail Patton, Broadcom’s director of financial

reporting, openly disclosed to E&Y in July 2000 that Broadcom had set aside a pool

of 7 million options to be issued as of May 26, 2000, but that as of mid-July, the final

allocations had not yet been made. (RX 1355 (E&Y worksheet bearing handwritten

note: “Per Gail Patton, this [7 millions shares] represents the maximum available

grants budgeted to be issued . . . .”) (emphasis added).6 Carol Prado testified that she

knew that the allocations for the May 2000 focal “would be made sometime after the

grant date” (10/27/09 RT 209:2-6), and that E&Y was fully aware of that plan. (Id.

at 223:6-16.)

Despite this disclosure, and E&Y’s initial comments that Broadcom might

have to take a $700 million charge in connection with this grant, E&Y ultimately

determined that no compensation expense was required. (11/19/09 RT 3048:24-

3049:6.) As a result, several of Broadcom’s senior executives, including Dr.

Samueli, came to understand that delays in allocating options did not trigger an

accounting charge under Opinion 25. (12/8/09 RT 4778:2-4780:17 (Samueli)).

Broadcom’s practice of hiring through acquisitions and its settlement with Dr.

Nayebi, both of which the government portrays as evidence of the purported criminal

conspiracy, were also openly disclosed to Broadcom’s outside professionals. The

Nayebi draft complaint and settlement were handled and thoroughly vetted by

Broadcom’s outside counsel, Irell & Manella,7 and the existence of the complaint

6 See also RX 1287 (Index to Meetings and Consents to Shareholders, Directors and Committees, which states that the Option Committee had “[a]pprove[d] a block of up to 7 million shares”) at RX 1287-016 (emphasis added).

7 (RX 4493; RX 4497; RX 4499; RX 4501; RX 4513; RX 4516; RX 4540; RX 4541; RX 4545; RX 4553; RX 4571; GX 4669.)


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was expressly disclosed to E&Y. (See Letters from Irell to E&Y, RXs 4750, 4636,

4565, 2827, 4728, 4784, 8131.)

Similarly, the evidence shows that Broadcom’s outside counsel and auditors

were apprised of Broadcom’s practice of hiring star employees through acquisitions

by granting them fair market value options in companies Broadcom was about to

acquire, and that the accounting for this limited practice was correct. Ms. Tullos

testified that Bruce Kiddoo, Broadcom’s then-controller, disclosed this hiring

practice to E&Y and that E&Y never “raise[d] an issue” with it. (11/04/09 RT

1278:18-1279:8, 1309:13-21, RX 1192 (Tullos).)

Far from trying to conceal the workings of Broadcom’s options program, in

the summer of 2002 (in the middle of the alleged conspiracy), Mr. Ruehle hired a

second audit firm, Deloitte & Touche, to perform a two-phase assessment and

upgrade of Broadcom’s internal controls. (RX 2699-001 to 2699-002.) In his

memorandum to Broadcom executives and board members, Mr. Ruehle explained

that the program was designed to identify “significant risks” (12/9/09 RT 4920:5.)

and “assure that Broadcom has in place control systems that are appropriate for now

and the future.” (RX 2699-001- RX 2699-002; 12/9/09 RT 4919:16-18.)

C. Mr. Ruehle Relied on the Accounting Staff and Outside Professionals to Get the Accounting Right

As the Chief Financial Officer, Mr. Ruehle signed Broadcom’s public filings.

Mr. Ruehle was not a CPA or an accountant, however. (11/13/09 2611:25 – 2612:1.)

He was hired for his financial experience and for his strong credibility with Wall

Street. (12/08/09 RT 4689:9-12.) To ensure that the accounting was correct, Mr.

Ruehle built a strong staff of technical accountants, including Gail Patton, the

director of financial reporting, and Greg Busby. (12/8/09 RT 4690:16-20, 4691:11-

15, 4691:19-21) (Samueli).) Mr. Ruehle relied upon Ms. Patton to provide him with

“straight answers about how things were supposed to be done.” (11/12/09 RT


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2148:12-7 (Tullos).) Indeed, Mr. Ruehle routinely said that he would “ not release

any numbers to the public until they have been Gailed” (RX 2173) meaning that he

was only comfortable if Ms. Patton personally signed off on the financial statements.

Ms. Patton and her team had the primary responsibility for preparing the financial

statements at the end of each quarter for submission to the SEC. (12/4/09 RT

4504:8-24 (Dull).)

Mr. Ruehle expected Ms. Patton and her team to take the initiative and

routinely vet issues with E&Y and outside counsel. (10/29/09 RT 609:25-610:17

(Prado); 11/5/06 RT 1536:22-1537:1 (Tullos).) Mr. Dull, Broadcom’s former

general counsel, testified that Mr. Ruehle and the accounting department “cared very

much about getting the accounting right” and “they spent many, many hours in

contact with Ernst & Young, . . . talking about accounting issues, and in order to

make sure they got it right.” (12/04/09 RT 4379:21-4380:2.)

D. E&Y Was Aware of Delays and Failed to Provide Proper Guidance

E&Y’s lead engagement partner, Bruce Stump, testified that Broadcom was

proactive in bringing accounting issues to E&Y’s attention (11/19/09 RT 3053:18-

22); he knew of no situation where Broadcom’s finance department ever tried to

bully or push E&Y to give a favorable answer. (Id. at 3058:13-19.)

Stump did not remember E&Y providing any training or literature to

Broadcom before 2006 about how to document its stock option grants. (11/17/09 RT

2699:7-20.) Nor did he or anyone else from E&Y ever personally advise Dr.

Nicholas and Dr. Samueli about the importance of maintaining contemporaneous

documentation for option grants. (Id. at 2700:10-16.)

E&Y did not consider Broadcom’s option granting process to be a high-risk

area and accordingly assigned some of the most junior members of the audit team to

perform the audits. (11/13/09 RT 2509:11-14; 11/18/09 RT 2833:2-4.) E&Y was

also well aware of the delays in preparing the UWCs and the other options


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documentation, but considered this an “administrative” issue and never indicated that

those delays represented a material weakness in internal controls. (11/18/09 RT

2899:16-24.)8

In addition to allowing Broadcom to complete its allocations for the May 2000

focal grant months after the grant date, E&Y led Broadcom’s finance department to

believe that Opinion 25 was not a bright line guideline, but subject to reasonable

interpretations. For example, in June 1999, E&Y informed Broadcom that

uncommunicated grants could be cancelled without triggering any compensation

charges. (RX 305 (noting that Broadcom could treat such grants as if they “were

never granted”)) (10/29/09 RT 600:24-601:13).)

E. Broadcom’s Accounting Errors Were Caused by a Good Faith Misapplication of Opinion 25

The evidence shows that, to the extent Broadcom’s practices were inconsistent

with a strict interpretation of Opinion 25, these accounting errors were caused by a

lack of understanding as to how to apply Opinion 25 to a myriad of situations

prompted by a rapidly growing company and severe market volatility. Indeed, at the

time, the personnel involved in the administration of Broadcom’s option granting

practices had little familiarity with Opinion 25.

Ms. Prado, for example, testified that there were six factors necessary in order

to establish a measurement date. (10/27/09 RT 61:23-62:3.) But Ms. Prado had no

idea as to whether her understanding of a measurement date was consistent with that

offered in Opinion 25 – it is not. (10/27/09 RT 150:7-17.) Not only was Ms. Prado

8 It was not until 2006 that E&Y recommended that UWCs be signed and returned before the grant date. (RX 2375.) When asked why E&Y did not provide such guidance earlier, Mr. Stump acknowledged that the world had changed in 2006: “a number of things had transpired between 1998 and 2006 . . . . Sarbanes-Oxley had been issued, and there were various procedures that were now in place, and companies were trying to do a better job of tying together their administrative processes.” (11/18/09 RT 2904:5-16.)


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unable to recall where the notion of a grant date was defined, she could not

remember if it was defined in the accounting literature at all. (10/27/09 RT 153:21-

154:1.)9 Indeed, Ms. Prado candidly admitted that she probably never even

looked at Paragraph 10b of Opinion 25 (the paragraph which defines

“measurement date”) during her time at Broadcom. (10/27/09 RT 154:16-19.)

She testified that Opinion 25’s notion of “measurement date” was “pretty much the

last thing on [her] mind.” (10/27/09 RT 206:9-12.) Instead, on issues like post-grant

date adjustments made to correct administrative errors in the granting practices, Ms.

Prado deferred to the guidance of Broadcom’s outside auditors. (10/27/09 RT

183:19-184:6; RX 2432.) Ms. Prado similarly testified that, based on advice from

E&Y, she did not believe that a compensation expense was triggered when

Broadcom “cancel[ed] a grant that had already been made as long as it was not

communicated.” (10/29/09 RT 608:23-609:19; RX 0305.)

During the relevant time period, from 1998 through 2003, Broadcom’s

personnel believed that the company’s options were granted at fair market value, and

no one expressed any concerns that these grants were not properly accounted for in

Broadcom’s financial statements. While we cannot address all of these grants, we

address below three of the grants that the government focused on at trial:

1. March 1, 2000 Grant

In its opening statement, the government described Carol Prado’s March 16,

2000 email to Gail Patton about the March 1, 2000 “top-up” grant to new employees

from Blue Steel, Digital Furnace and Stellar to be a blatant evidence of “backdating”

and “cheating.” (10/23/09 RT 37:25-38:2; GX 4486 (“Bill would like to wait until

Friday close 3/17 to make a decision on this grants. If Friday’s close is higher than

9 In fact, Opinion 25 nowhere defines the term “grant date”. See RX 3240; 12/1/09 RT 3703:23-25.


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the 3/1 close of $206, we’ll go with the 3/1 grant date.”).) Back in March 2000,

however, neither Ms. Prado nor Ms. Patton expressed any concern about waiting

until March 17 to decide whether to use the March 1 grant date. (10/29/09 RT

626:9-14) (Prado admitted that “it was mostly a matter-of-fact e-mail”). Ms. Prado

admitted that since top-up grants were usually made to employees from recent

acquisitions on the day of, or the day immediately after an acquisition, March 1

appeared to be the default day on which this grant would be made.10 (10/29/09 RT

627:6-10); see also id. at 628:22-24.) Rather than reaching back to select a date, Ms.

Prado considered the selection of March 1 as the grant date to be consistent with

Broadcom’s normal process. (Id. at 631:1-5.) Accordingly, neither Ms. Prado nor

Ms. Patton, Broadcom’s director of financial reporting, “identif[ied] any Opinion 25

accounting issue with regard to this” email. (10/29/09 RT 625:16-626:8; id. at

631:23-632:7) (neither Ms. Prado nor Ms. Patton raised a question about this grant to

Mr. Ruehle).11

2. December 24, 2001 Grant

The evidence has also established that Mr. Ruehle and others at Broadcom had

a good faith belief that the December 24, 2001 grant to employees who had

participated in the June 2001 tender offer was a proper, fair market value grant. The

government suggested in its opening that Mr. Ruehle’s January 4, 2002 email to Dr.

Nicholas and Dr. Samueli recommending that they “grab” the December 24 price

was proof of backdating. (10/23/09 RT 30:3-33:25 (opening); 11/3/09 RT 1041:15-

1046:1; RX 2759) (“I VERY strongly recommend(s) that [the re-grant of options 10 Two of these acquisitions had closed on February 29, and the third had closed on March 1, 2000. (10/29/09 RT 629:3-9.)

11 Significantly, there were to at least two intervening days between March 1 and March 17, where the stock price was lower than the $206 price on March 1 – March 14 ($200.94) and March 15 ($187.94) – thus belying any claim that Broadcom was backdating to select the optimal price. (10/29/09 RT 630:4-10.)


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issued to those who participated in the June 2001 tender offer] be priced as of Dec 24

($39 & change).” The unrebutted testimony of Dr. Samueli and Mr. Dull, however,

established that Drs. Samueli and Nicholas had always intended to grant these

options on December 24, 2001, the first day after the 6 month and a day window

opened, and this understanding was well known among senior executives at the

company.12 According to Mr. Dull, Mr. Ruehle’s email was merely an attempt to

dissuade Dr. Nicholas from “re-litigating” the Option Committee’s prior decision to

re-grant the options as of December 24. (12/4/09 RT 4382:18-22.)

3. The July 3, 2002 Grant

The evidence also established that the accounting errors associated with the

July 3, 2002 double focal grant were the result of an innocent misapplication of

Opinion 25 rather than intentional misconduct. Indeed, the evidence showed that

Broadcom began the allocation process for the 2002 focal well before July, and Dr.

Samueli testified that Dr. Nicholas and he selected the July 3, 2002 date in real time.

(12/9/09 RT 4911:6-11) Dr. Samueli indicated that this was the last day of the week

before the July 4th holiday and thus fit Broadcom’s general practice of granting on

Fridays or the last weekday before a holiday. (Id. at 4913:16-23.) Due to

Broadcom’s last minute decision to do a “double focal,” however, the company was

not able to complete the allocations for the 2003 part of the grant in early July.

Given E&Y’s instructions from the 2000 focal grant to “tighten the goalpost,”

(12/9/09 RT 4901:11-15), Mr. Ruehle insisted that all allocations be completed by

ten business days after July 3, or July 19. (12/4/09 RT 4408:14-22 (Dull).) When Dr.

12 (RT 12/9/09 4886:21-4887:5 (Samueli: “It was our intention to grant on December 24, 2001, and in fact, that is what we did.”); see also RT 12/9/09 4883:10-4885:20) (Samueli); 12/3/09 RT 4365:9-12 (Dull: “the expectation had always been that these grants would be made at the earliest possible date because we had – the principal reason being that the employees were sitting there bare in the meantime”); id. at 4366:13-15 (Dull) (“there was a general understanding among the board and the senior management that that’s when the grants would be made”).)


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Nicholas failed to submit his list by that time, Mr. Ruehle enforced the July 19

deadline, even though he would have been a recipient of the fortuitously low July 3rd

price and there was no guarantee that such a low price could be secured in the future.

(RX 0350.) Based on E&Y’s guidance from the May 2000 grant, however,

Broadcom’s management continued to believe that the company could allocate the

options for the 2003 part of the focal grant after the fact without triggering a

compensation charge. In fact, Dr. Samueli testified that allocating options after the

grant date was Broadcom’s “standard practice for all of the focal grants that [the

company] did in that time frame of 1998 to 2003.” (12/9/09 RT 4991:17-22.) While

this grant was later restated, the government has failed to present any evidence that

Mr. Ruehle knew at the time that the delays in the allocation of the 2003 double focal

required Broadcom to take a compensation charge.

F. Efforts to Improve the Process

Broadcom’s option granting program steadily improved as the company

matured. (12/04/09 4403:16-4404:9 (Dull).) After the May 2000 focal grant, Mr.

Ruehle, with the assistance of David Dull, spearheaded an effort to improve the

process. (12/08/09 4770:24-4771:21); 11/06/09 RT 1733:21-23 (“Mr. Ruehle and

Mr. Dull were both very strong proponents of tightening the goal posts.”) (Tullos).)

Although Broadcom’s senior staff continued to believe that delays in allocations did

not trigger accounting consequences, Broadcom continued to tighten the window for

such allocations. (12/08/09 4770:24-4771:21 (Samueli).)

Broadcom further refined the stock option process in 2003 after Dr. Nicholas’s

and Ms. Tullos’s departure and the arrival of Nicole Bonsness. (10/29/09 539:20-

540:9; 540:13-19.) Mr. Ruehle fully supported these process improvements.

(11/6/09 RT 1820:16-22; 12/8/09 RT 4777:8-11; 11/10/09 RT 1973:9-14.)

Significantly, none of the options granted after this voluntary process improvement

in mid-2003 were restated. (11/20/09 RT 3404:20-3405:5 (Tirva).)


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G. Broadcom’s Investigation and Restatement in 2006 through 2007

In May 2006, Broadcom voluntarily launched an internal review of its options

program in response to various media reports relating to the option granting practices

at various companies. (10/29/09 RT 545:19-546:8 (Werner).) As a result of the

investigation, which applied a much stricter interpretation of Opinion 25 than had

existed back in the 1998 through 2003 time frame (11/20/09 RT 3323:5-16) (Stump)

(12/9/09 RT 4995:24-4996:15), Broadcom restated its historical financial statements

in January 2007 by recording an additional $2.2 billion in non-cash compensation

charges. (GX 4458-R at 4458-011.) Approximately $600 million of this non-cash

charge resulted from the restatement of the May 26, 2000 focal grant (11/20/09 RT

3391:21-3392:4 (Stump)), which E&Y had previously approved despite knowing

that the allocations were not complete as of July 2000.

The restatement had no effect on Broadcom’s cash, revenues or marketable

securities (GX 4458R-011), or on the company’s market value or financial health.

Indeed, the company’s stock price actually rose after Broadcom’s disclosures about

the investigation in June and July 2006, and rose over 4% the day after the company

announced the restatement on January 23, 2007. (RXs 5257; 5258, 5259; 12/10/09

RT 5156:7-5157:21.)

H. The Deficiencies of APB Opinion 25 Led to a Wave of Internal Investigations and Restatements in 2006 and 2007

Broadcom was not alone in its innocent misapplication of Opinion 25. In

2006 and 2007, almost 270 companies launched internal investigations of their

historical options granting practices. (RX 8847.) Ultimately, 220 companies issued

restatements or recorded adjustments to correct their stock option accounting from

the 1990s and early 2000s. As Mr. Riley, the former Acting Chief Accountant of the

SEC, testified, it was a rare event in the history of accounting. (12/1/09 RT 3735:11-

17.) In his 30-year career, Mr. Riley has never seen so many restatements issued at


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the same time, by so many companies, all to correct errors in applying the same

accounting opinion. (Id.)

The companies that misapplied Opinion 25 during the 1990s and early 2000s

included some of the best-known and most respected companies in the world:

Microsoft; Apple; Bed, Bath & Beyond; Clorox; Mattel; Barnes & Noble; The

Cheesecake Factory; The Home Depot, and others. (RX 8844.) Notably,

approximately 25% of these companies were audited by E&Y. (12/1/09 RT

3736:10-14.) The historical option-granting and accounting practices of these

companies were remarkably similar to those the government charges here as criminal.

No fewer than 112 companies reported some form of “subsequent allocation.” (RX

8846; 12/01/09 RT 3743:10-17; see, e.g., RX 2380-007.) At least 79 companies had

used Unanimous Written Consents to grant options “as of” some prior date. (RX

8846; 12/1/09 RT 3740:16-19; see, e.g., RX 2380, at 2380-007-008. And at least 37

companies reported that they had a regular practice of looking back to grant options

at periodic lows in their stock prices. (Id.; 12/1/09 RT 3744:6-12.)

Among those companies acknowledging the use of lookbacks to price options

were Apple and Microsoft. Each of these companies reported that their option grants

had been issued at “fair market value” and therefore recorded no compensation

expense in their original financial statements. In a 1997 disclosure signed by CEO

Bill Gates, for example, Microsoft reported that “[n]o compensation cost is

recognized because the option exercise price is equal to the market price of the

underlying stock on the date of grant.” (RX 3404 at 3404-056.) Later, in a 1999

disclosure also signed by Mr. Gates, Microsoft reported that “[h]istorically, exercise

prices of grants of ESOs were struck at the lowest price in the 30 days following July

1 for annual grants and the 30 days after the start date for new employees.” (RX


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2959-066-67; RX 8850.)13 Indeed, like Broadcom, virtually every company that

issued a restatement in 2006 originally characterized its option grants as “issued at

fair market value.” (See 12/1/09 RT 3755:8-16.)

Each of the 220 restatements involved a misapplication of the “measurement

date” criteria mentioned in paragraph 10(b) of Opinion 25. (RX 8856; 12/1/09 RT

3641:2-12.) As Mr. Riley and others have explained, defining the “measurement

date” was a prerequisite to computing compensation expense under Opinion 25’s

“intrinsic value” method. (See, e.g., 12/1/09 RT 3704:16-3705:4.) Many companies

explicitly disclosed that their executives misunderstood Opinion 25’s definition of

“measurement date.”

Mr. Riley opined that Opinion 25 was neither “simple,” “straightforward,” nor

“easy to apply.” (12/1/09 RT 3797:25-3798:1-8, 3702:13-25.) Indeed, he testified

that it was criticized almost from its inception in 1972, primarily for failing to

provide guidance on how to apply it. (12/1/09 RT 3705:16-21.) It was eventually

terminated and replaced by FAS 123R, which became effective in 2005.

Mr. Riley explained that this unprecedented wave of restatements was caused

by a variety of factors including: (1) a lack of guidance in applying Opinion 25 (RX

8870), particularly as it was applied to broad-based grants. (12/1/09 RT 3798:9-

3799:1); (2) a widespread belief among executives that “Opinion 25 afforded

flexibility to select grant dates with some degree of hindsight” and to allocate those

grants sometime after the grants were approved (RX 8870; 12/1/09 RT 3764:2-8; see

RX 2391-009); (3) a belief that “as of” dates on UWCs were sufficient to establish 13 Likewise, Bed, Bath & Beyond reported that its option grants were “issued at fair market value” in 2002 and later disclosed in 2006 that “almost all annual grant dates in 1998-2004 were selected with some hindsight.” (RX 8851.) Other examples abound. (RX 8852 (KV Pharmaceutical); RX 8853 (UnitedHealth Group); RX 8854 (Progress Software); RX 8855 (The Cheesecake Factory); RX 8856 (Applied Micro Circuits); RX 8858 (Corinthian Colleges); RX 8864 (Silicon Storage Systems); RX 8865 (Apple).)


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measurement dates under Opinion 25 (RX 8870; 12/1/09 RT 3799:2-6); and (4) a

“Newfound rigor in applying Opinion 25 in 2006-2007” (RX 8870; 12/1/09 RT

3649:8-22).

III. ARGUMENT

A. Rule 29(a) Requires the Court to Enter A Judgment Where the Government’s Evidence is Insufficient to Sustain a Conviction

Rule 29(a) of the Federal Rules of Criminal Procedure provides that upon

motion by the defendant following the close of the prosecution’s case-in-chief or

after the close of all the evidence, the court “must enter a judgment of acquittal of

any offense for which the evidence is insufficient to sustain a conviction.” Fed. R.

Crim. P. 29(a).14 The evidence adduced at trial must be viewed in the light most

favorable to the prosecution. See United States v. Capati, 980 F. Supp. 1114, 1121

(S.D. Cal. 1997), aff’d, 162 F.3d 117 (9th Cir. 1998). It is well settled in the Ninth

Circuit and elsewhere, however, that

[W]hen there is an innocent explanation for a defendant’s conduct as well as one that suggests that the defendant was engaged in wrongdoing, the Government must produce evidence that would allow a rational jury to conclude beyond a reasonable doubt that the latter explanation is the correct one.

United States v. Delgado, 357 F.3d 1061, 1068 (9th Cir. 2004) (emphasis added).

Although the government “need not negate every theory of innocence,” when “the

evidence viewed in the light most favorable to the prosecution gives ‘equal or

nearly equal circumstantial support to a theory of guilt and a theory of

innocence,’ then ‘a reasonable jury must necessarily entertain reasonable

14 Mr. Ruehle orally moved for a judgment of acquittal at the close of the government’s case-in-chief, at which time the Court took Mr. Ruehle’s motion under submission. (11/24/09 RT 3596:16-3597:10.) Mr. Ruehle now moves for a judgment of acquittal, pursuant to Rule 29(a), based on all of the evidence introduced in the case.


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doubt,’” and an acquittal must be granted. United States v. Triumph Capital

Group, Inc., 544 F.3d 149, 158, 159 (2d Cir. 2008) (citations and internal quotation

marks omitted) (emphasis added); see also United States v. Cassese, 428 F.3d 92 (2d

Cir. 2005) (affirming district court’s grant of Rule 29 motion where the prosecution’s

evidence “was characterized by modest evidentiary showings, equivocal or

attenuated evidence of guilt or a combination of all three”) .

The Court’s role in assessing the sufficiency of the prosecution’s case on a

Rule 29 motion is especially important in a case like this where the underlying

accounting provisions are complex, confusing and widely misapplied; where there is

evidence of a lack of understanding by Broadcom’s finance department; and where

the prosecution is asking the jury to convict largely, if not solely, on speculation.

“[A] conviction based on speculation and surmise alone cannot stand.” United States

v. D’Amato, 39 F.3d 1249, 1256 (2d Cir. 1994).

B. The Court Should Enter a Judgment of Acquittal As To All Remaining Counts of the Indictment Because the Government Has Failed To Present Sufficient Evidence of Criminal Intent

The Court should grant Mr. Ruehle’s motion for a judgment of acquittal as to

all the remaining counts in the indictment (Counts 1, 2, 3-7, 9, 10-12, 14 and 16)

because the government has failed to present sufficient evidence of criminal intent or

scienter. 15

In order to prevail, the government must prove beyond a reasonable doubt that

Mr. Ruehle (1) had a specific intent to defraud, or to cheat and deceive; and that he

acted (2) “willfully” and (3) “knowingly.” The government has failed to adduce

sufficient evidence for a reasonable jury to find any of these elements beyond a

15 The government dismissed Counts 8, 13, 15, 17, 19, 20, and 21 prior to the start of trial, and dismissed Count 18 at the conclusion of the government’s case.


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reasonable doubt. To the contrary, the evidence has established that Mr. Ruehle

acted in good faith with respect to every aspect of Broadcom’s stock option process.

C. The Government Has Failed to Present Sufficient Evidence to Prove That Mr. Ruehle Acted With the Intent to Defraud (Counts One and Two)

The government concedes in its indictment that it cannot prove Counts One

(Conspiracy)16 and Two (Securities Fraud) without proving that Mr. Ruehle acted

with the intent to defraud Broadcom’s shareholders. (Indictment, ¶¶ 8, 135, pp. 8,

55.) 17 The government cannot establish the intent element of a fraud change without

proof that (1) the accused acted with specific intent to defraud, mislead, or deceive,

and “that the defendant intended to defraud an identifiable individual,” United States

v. Milwitt, 475 F.3d 1150, 1156 (9th Cir. 2007); see also Ninth Circuit Model

Criminal Instructions § 3.17 (Intent to Defraud) (2003) (“An intent to defraud is an

intent to deceive or cheat.”).

The government has failed to adduce any evidence that Mr. Ruehle had the

specific intent to cheat or deceive anyone here. To the contrary, each and every one

of the four purported conspirators who testified (Dr. Samueli, Mr. Dull, Ms. Prado,

and Ms. Tullos) vehemently denied that they intended to defraud anyone. Indeed,

even the government’s witnesses repeatedly testified that Broadcom’s stock option

program – including management’s efforts to obtain low options prices – was

16 A judgment of acquittal should also be granted as to Count One for the separate reason that there is no evidence that Mr. Ruehle or anyone else entered into a conspiracy to commit securities fraud or any of the other alleged objects of the purported conspiracy. 10/29/09 RT 692:1-14, 714:9-19 (Prado); 11/10/09 RT 2134:14-17 (Tullos); 12/4/09 RT 4382:9-4383:1 (Dull); 12/9/09 RT 4890:2-24-24 (Samueli).

17 Mr. Ruehle respectfully submits that a specific intent to cheat and deceive is an element of all the offenses charged in the indictment, and expressly reserves the right to so argue in any future proceedings. In light of the Court’s proposed jury instructions, however, Mr. Ruehle does not press that argument here.


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intended to benefit the company and its shareholders. Ms. Tullos testified that the

intent of the program was to attract and incentivize employees in order to build

shareholder value and build a great company. (11/10/09 RT 1958:15-24.) (noting

that the employees were shareholders and that “[e]veryone would benefit” from the

stock option program). Ms. Prado wholeheartedly agreed:

Q. You knew that it was the options committee philosophy to try to get Broadcom employees options the lowest price they could, right?

A. It was my understanding that they felt it was in the employees’ best interest to have a lower price, of course.

Q. And ultimately the shareholders’ interest because it would encourage the employees to work hard, right?

A. Yes.

(10/29/09 RT 629:17-24.)

Neither Ms. Prado nor Ms. Tullos believed that they were part of a scheme to

commit securities fraud or to cheat and deceive shareholders. Ms. Prado vehemently

denied that she had ever intended to cheat or deceive Broadcom’s shareholders or

E&Y. (10/29/09 RT 691:16-692:13.) (“Q. Now, Ms. Prado, you never intended to

cheat Broadcom shareholders, did you? A. Of course not.”) Similarly, she denied

ever entering into any understanding with Mr. Ruehle or anyone else to cheat

Broadcom’s investors or auditors. (Id. at 692:1-13.) When confronted with the fact

that the government had identified her as a co-conspirator commit to securities fraud,

Ms. Prado denied that too. (10/29/09 RT 714:20-23) (“Q. And certainly during the

time that you lived these events between 1998 and 2002 that thought [i.e., that she

had committed securities fraud] never entered your brain; correct? A. Correct.”)

Tullos similarly denied that she had ever intended to defraud shareholders or

anyone else.

Q. You never believed that you were cheating employees; correct?

A. That’s correct.


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Q. You never believed that you were cheating shareholders; correct?

A. That’s correct. Q. You never believed you were lying to the auditors or

to the SEC; correct? A. That’s correct. Q. You never agreed with any other Broadcom

employee to cheat the shareholders, or to lie to the auditors, or to lie to the SEC; right?

A. That’s correct.

(11/10/09 RT 2134:5-17; see also id. 11/6/09 RT 1764:17-1765:4.)

Dr. Samueli and Mr. Dull, whom the government alleges were co-conspirators,

confirmed Ms. Tullos’s and Ms. Prado’s testimony. When asked whether he had

ever participated “in a conversation . . . with any Broadcom employee in which the

intent was to defraud or harm or deceive shareholders,” Mr. Dull replied:

“Absolutely not.” (12/4/09 RT 4443:13-17.) Q. Did you ever participate in any conversation or

communication with any Broadcom employee where the intent was to fail to disclose material information to Broadcom’s outside auditors?

A. No. Q. Did you ever observe Bill Ruehle attend a meeting, or a

conversation, or a discussion, or any communication where he evinced an intent to defraud, cheat, harm or deceive Broadcom’s shareholders.

A. No, I did not.

(Id. at 4443:18-4444:1.)

Dr. Samueli was equally adamant that neither he nor any other member of

Broadcom’s senior management had ever sought to cheat or deceive shareholders.

Indeed, he pointed out that given that Dr. Nicholas and he owned the majority of the

company, it was absurd to say he was trying to defraud the shareholders.

Q. Sir, did you ever intend to defraud Broadcom’s shareholders?


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A. Of course not. I’m the largest shareholder of Broadcom. I would be defrauding myself. That makes no sense. No, I did not.

Q. Did you ever intend to deceive or cheat Broadcom shareholders?

A. No. I never intended to deceive or cheat myself or Broadcom shareholders, again, me being the largest Broadcom individual shareholder.

(12/9/09 RT 4943:18-4944:8) (emphasis added).

The government has failed to introduce any evidence, either in the form of

documents or testimony, that would rebut these unanimous denials by four of the

purported co-conspirators. The government’s evidence is therefore insufficient to

establish a specific intent to defraud; to the contrary, it establishes the absence of

specific intent. Because a specific intent to defraud is an element of Counts One and

Two, and the government has introduced insufficient evidence, a judgment of

acquittal should be entered as to both of those two counts.18

D. The Government Has Failed to Present Sufficient Evidence to Prove That Mr. Ruehle Acted Willfully or Knowingly with Respect to Any of the Charges (All Counts)

As the plain language of the indictment makes clear, the government must

demonstrate that Mr. Ruehle acted “knowingly” and “willfully” in order to prove

each and every count in the indictment. (Indictment at pp. 8-9, 55, 56, 58, 59, 60,

62); see also United States v. Dixon, 536 F.3d 1388, 1396 (2d Cir. 1976) (second

18 The Court should also grant judgments of acquittal on Counts One and Two because the government has failed to adduce sufficient evidence to prove that Mr. Ruehle knowingly or willfully made false statements or omissions, or engaged in any other conduct charged in those counts.


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clause of § 78ff(a) requires knowing and willful conduct which is grounded in

“fraudulent intent”).

The mens rea embodied in “knowingly” requires the government to prove as

an element of the offense that Mr. Ruehle voluntarily and intentionally, and not by

accident or mistake, engaged in the prohibited conduct. United States v. Reyes, 577

F.3d 1069, 1073 (9th Cir. 2009) (to prove a defendant acted knowingly, the

government must prove defendant “was aware of that falsification and did not falsify

through ignorance, mistake, or accident”). In a securities fraud case, the “knowing”

requirement protects those who accidentally record incorrect information because,

for example, they are confused by the accounting standards. Reyes, 577 F.3d at

1080.

The “willfully” element requires the government to prove that a defendant

acted “intentionally and purposely and with the intent to do something the law

forbids, that is, with the bad purpose to disobey or to disregard the law.” Bryan v.

United States, 524 U.S. 184, 189, 118 S. Ct. 1939, 141 L. Ed. 2d 197 (1998).

Accordingly, the government cannot prevail on any count in the indictment unless it

can prove beyond a reasonable doubt that Mr. Ruehle acted intentionally and

purposely, was aware of his conduct, and intended to violate the law, and that Mr.

Ruehle did not act or fail to act due to ignorance, mistake or accident.

The government has not met that burden here. To the contrary, the

overwhelming weight of the evidence introduced demonstrates that the improper

accounting for stock options at Broadcom was the result of mistakes and good faith

errors rather than any knowing or willful conduct. These errors were caused by

several factors, included the flawed accounting opinion at the heart of the case.

Opinion 25 was neither easily understood nor easily applied, and was in fact

misapplied by hundreds of other companies from 1998 to 2006. (12/1/09 RT

3797:24-3798:8.) Only in 2006, when media interest and government scrutiny


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caused companies to focus on Opinion 25, did companies, including Broadcom,

begin to suspect that their accounting for stock options was mistaken.19 Where, as

here, there is compelling evidence of a widespread custom and practice within an

industry, or of confusion about certain standards, such evidence may be introduced

to negate any evidence of criminal intent.20

The evidence presented regarding Broadcom’s stock option program confirms

that Mr. Ruehle did not knowingly and willfully run afoul of Opinion 25 or violate

securities laws. To the contrary, the evidence has demonstrated that even

Broadcom’s outside auditors and counsel were fully aware of several aspects of

Broadcom’s stock option process that the government now claims were improperly

accounted for, and yet never raised any issues during the relevant time period.

(11/4/09 RT 1278:18-1279:8, 1309:13-21 (Tullos); RX 1192; RX 2777.) Moreover,

the evidence shows that Broadcom’s auditors gave Broadcom and Mr. Ruehle advice

regarding certain issues (e.g., the May 2000 focal grant) that was inconsistent with

the language and current understanding of Opinion 25, and reversed course on that

19 “[C]ourts have concluded that APB No. 25 is a complex rule, and that a

misapplication of APB No. 25 “‘cannot be construed as a glaring example of scienter because the measurement date criteria embodied in APB No. 25 are far from obvious.’” City of Westland Police & Fire Ret. Sys. v. Sonic Solutions, No. C 07-05111 CW, 2009 WL 942182, at *6 (N. D. Cal. Apr. 6 2009) (citing Weiss v. Amkor Tech., Inc., 527 F. Supp. 2d 938, 949 (D. Ariz. 2007); In re Sportsline.com Sec. Litig., 366 F. Supp. 2d 1159, 1168-69 (S.D. Fla. 2004). See also Weiss v. Amkor Tech., Inc., 527 F. Supp. 2d 938, 949 (D. Ariz. 2007) (“[T]he accounting rules at issue, specifically APB No. 25, are complex and require accounting expertise and judgment.”).

20 See, e.g., United States v. Riley, 550 F.2d 233, 236 (5th Cir. 1977) (reversing conviction where such evidence was excluded); United States v. Steffen, 641 F.2d 591, 596 (8th Cir. 1981) (finding custom and practice in banking industry relevant to defendant’s intent); see also United States v. Kelly, 888 F.2d 732, 744 (11th Cir. 1989) (reversing conviction because trial court improperly excluded defense testimony about professional standards that was relevant to “evaluating criminal intent”).


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very advice in the wake of the rising scrutiny of stock options accounting in 2006.

(11/18/09 RT 2894:17-2895:7; 11/19/09 RT 3051:23-3052:9; 12/1/09 RT 3789:22-

3990:2, 3796:4-3797:8.) Accordingly, there is compelling evidence that Mr.

Ruehle’s conduct in this case was made in reliance on experts who had a good faith,

but mistaken view of Opinion 25 that only became apparent in hindsight. United

States v. Bishop, 291 F.3d 1100, 1106-07 (9th Cir. 2002) (good faith reliance on a

qualified accountant is a defense to willfulness).

Significantly, although this case involved the interpretation and application of

a complex accounting guideline, the government failed to call a single member of

Broadcom’s financial reporting department to testify, even though they were the

accountants principally responsible for preparing Broadcom’s financial statements

and ensuring that the company properly recorded compensation expenses. (12/4/09

RT 4504:8-24 (Dull).)21 Not a single witness testified that he or she conspired with

Mr. Ruehle, that Mr. Ruehle ever caused him or instructed him to falsify Broadcom’s

financial statements or accounting documents, or that anyone ever told Mr. Ruehle

that Broadcom’s accounting for stock options was incorrect. To the contrary, even

the government’s own witnesses have denied being part of a conspiracy or engaging

in any wrongful behavior. Ms. Prado, for example, testified that “during the time

21 The government put Gail Patton, the director of financial reporting who was responsible for ensuring the accuracy of the financial statements (12/4/09 RT 4504:12-24), on its witness list, and informed Mr. Ruehle’s counsel on several occasions that she would be one of the government’s “next” witnesses. (Sloan Decl., ¶ 5.) However, the government never called her or anyone else from Broadcom’s financial reporting division to testify. The reason why is obvious. According to the government’s FBI-302, not a single member of the financial reporting staff or the accounting department – including Gail Patton – ever expressed any concern to Mr. Ruehle or anyone else that Broadcom’s financial statements were inaccurate or failed to properly record Broadcom’s true stock-based compensation expenses. (Sloan Decl., ¶ 6.)


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that [she] lived these events between 1998 and 2002 [the thought that she was a co-

conspirator to a securities fraud] never entered her brain.” (10/29/09 RT 714:20-23.)

The evidence thus offers scant support for a finding that Mr. Ruehle acted

knowingly and willfully. A reasonable jury could not find these elements beyond a

reasonable doubt. Accordingly, as set forth below, a judgment of acquittal should be

granted as to all the remaining counts.

1. The Government Has Failed To Prove that Mr. Ruehle Made False Certifications of Financial Reports and False Statements in Reports Filed with the SEC (Counts Three to Seven and Nine)

The prosecution alleges in counts Three through Seven that Mr. Ruehle

falsely certified that the following financial statements fairly presented in all material

respects the financial condition of Broadcom: (1) Broadcom’s Form 10-Qs filed on

August 14, 2002 and November 14, 2002 (Counts 3 and 4) and (2) Broadcom’s

Form-10Ks filed on March 31, 2002, March 15, 2004 and March 1, 2005 (Counts 5-

7). Count 9 alleges that Mr. Ruehle knowingly made false or misleading statements

or omissions in Broadcom’s Form 10-Q for the Third Quarter of 2002.

The Court should grant Mr. Ruehle’s motion for a judgment of acquittal with

respect to these counts because the government has adduced no evidence that Mr.

Ruehle knew that the information reflected in these SEC filings was false or

misleading in any way or acted willfully.

2. The Prosecution Has Failed to Prove that Mr. Ruehle Made False Statements to Broadcom’s Auditors (Counts Ten Through Twelve)

Counts Ten through Twelve allege that Mr. Ruehle made or caused to be made

various false statements in management representations letters to E&Y, in violation

of 15 U.S.C. § 78ff. The government fell far short of meeting its burden on each of

these counts. Most strikingly, the government failed to call a single Broadcom

accountant, let alone one that believed that the company’s option transactions “[had]


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not been properly recorded in the accounting records” or that “Broadcom’s financial

statements” failed to comply with “generally accepted accounting principles.” To

the contrary, the evidence showed a general lack of understanding about Opinion 25

and the other GAAP applicable to stock options, and frustration with Ernst &

Young’s “inconsistent” advice on the subject. (RX 1662 at 1662-002 (“Why can’t

we ever get consistent answers from our accountants? How do we resolve this?”);

see also RX 1734.) There was simply no evidence presented that Mr. Ruehle or

Broadcom’s accounting department knew that Broadcom’s financial statements or

accounting records failed to comply with GAAP.

Similarly, the government adduced no evidence that Mr. Ruehle or anyone

else believed that Broadcom’s internal controls were insufficient. In fact, the

evidence showed that Mr. Ruehle engaged a second auditing firm, Deloitte &

Touche, to obtain further assurance that Broadcom’s internal controls were sound.

Such conduct is plainly inconsistent with an intent to subvert internal controls and

misreport their condition to the company’s auditors. (RX 2699.)

3. The Prosecution Has Failed to Prove That Mr. Ruehle Criminally Falsified Broadcom’s Books And Records (Counts Fourteen and Sixteen)

The prosecution has also failed to prove that Mr. Ruehle willfully and

criminally falsified, or aided or abetted others to falsify the books or records of

Broadcom, as alleged in Counts Fourteen and Sixteen of the indictment. The

government alleges that the August 5, 2002 Compensation Committee and

November 8, 2002 Option Committee Unanimous Written Consents (“UWCs”)

falsely claimed that Broadcom’s option or compensation committee granted options

on the date contained on the UWC. But on their face, these UWCs clearly state that

the resolutions were being adopted, ratified, and approved by the written consents

“in lieu of a meeting” and that the members of the committees had “executed this

Written Consent as of the date first above written.” (GX 3385 (8/5/2002 UWC of


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the Compensation Committee) and GX 3465 (11/8/2002 UWC of the Option

Committee) (emphasis added). Thus, the UWCs do not claim that the committee

members had contemporaneous meetings or executed the UWCs on the effective

date.

Furthermore, there is ample evidence of contemporaneous documentary

support in the record for the August 5, 2002 grant date. On August 5, the very day of

the grant, Mr. Ruehle emailed Ms. Tullos saying, “you wanted $15.74 today? You

got it!” (RX 4678; 11/6/09 RT 1855:15-22.) On August 6, Ms. Tullos received an

email from Glenn Josephson, the head of shareholder services, confirming that Mr.

Ruehle had spoken with Dr. Nicholas the previous night, and Dr. Nicholas confirmed

to Mr. Ruehle that options to his staff would be granted as of the same day. (RX

2067, 11/6/09 RT 1857:2-18.)22

The government’s evidence regarding the November 8, 2002 UWC is

similarly deficient. The record is devoid of any testimony by any Broadcom

personnel concerning the November 8, 2002 grant. The only evidence offered by the

government was Special Agent Bonin’s speculation that the absence of references to

the November 8, 2002 grant in two Broadcom emails discussing options respectively

dated in November and December 2002 meant that the November 8 2002 grants

were not made contemporaneously. (11/24/09 RT 3514:19-3518:18.) Mr. Bonin’s

testimony fails to meet the government’s burden of proof. Mr. Bonin has no

22 In addition, Mr. Dull explained that Broadcom believed that the Compensation Committee could ratify a grant after the grant date (12/3/09 RT 4341:16-18), and use UWCs to ratify the actions taken by others. (12/3/09 RT 4200:23-4201:19.) Mr. Dull testified that, in the pre-Sarbanes Oxley era, this informal process was believed to be an appropriate way of conducting the business of the compensation committee. (12/3/09 RT 4202:10-4203:2.)


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personal knowledge to opine on the meaning of the emails. Thus, his testimony is

speculative and should be stricken.23

Accordingly, the Court should grant Mr. Ruehle’s motion for judgment of

acquittal as to Counts Fourteen and Sixteen of the indictment.

IV. CONCLUSION

On the record before this Court, no rational juror could find guilt beyond a

reasonable doubt with respect to any of the remaining Counts. Accordingly, this

Court should grant Mr. Ruehle’s motion for a judgment of acquittal and bring this

long nightmare of a prosecution to an end.

DATED: December 14, 2009

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Richard Marmaro Jack P. DiCanio Matthew Sloan Matthew Donald Umhofer By: /s/ Richard Marmaro

RICHARD MARMARO Attorneys for Defendant WILLIAM J. RUEHLE

23 In particular, Mr. Bonin hinges his testimony on an email written by Ms. Luu on November 22, 2002 stating, “The last times we have granted were 10/4/02 and 11/14 for Lanny only.” (GX 4623; 11/24/09 RT 3515:20-3516:7.) In 2002, prior to Dr. Nicholas’s departure from the company, Mr. Alan “Lanny” Ross was a member of the compensation committee, not the option committee. (10/28/09 RT 383:5-9; 12/08/09 RT 4790:21-3.) Thus, because the government failed to call Ms. Luu to explain the context of her email, it is unclear that the sentence is even referring to Option Committee grants that are the subject of the November 8 UWC.


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PROOF OF SERVICE; No. SACR 08-139-CJC

1

PROOF OF SERVICE

I hereby certify that I caused the foregoing to be filed with the Clerk of the

Court by using the ECF system which sent notification of the filing to the following:

Brendan V. Sullivan, Jr. WILLIAMS & CONNOLLY LLP 725 Twelfth St., N.W. Washington, DC 20005

James D. Riddet STOKKE & RIDDET 3 MacArthur Place, Suite 750 Santa Ana, CA 92707

Robb C. Adkins UNITED STATES ATTORNEY’S OFFICE 411 W. Fourth St., 8th Flr. Santa Ana, CA 92701

By: /s/ Richard Marmaro RICHARD MARMARO


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