Henry T. Nicholas net worth 2012, Henry Nicholas isn’t just another tech-boom billionaire charged with backdating stock options. All the drive, arrogance, and aggression he poured into building microchip-maker Broadcom—one of the major success stories of the Internet Age—morphed into an increasing obsession with sex and drugs, according to federal prosecutors.
The author investigates the allegations about Nicholas’s out-of-control world: the parade of prostitutes, the spiking of clients’ drinks with Ecstasy, and the secret lair he built underneath the Orange County mansion he shared with his wife and kids. by Bethany McLeann April 12, 2008, a funeral was held at the Westwood Hills Christian Church, which is across the street from U.C.L.A., for a man named Robert Warnes Leach. Leach was a screenwriter and teacher who was best known for his scripts for the television series Perry Mason. But the obituaries also prominently mentioned the fact that Leach’s stepson was Henry Nicholas, the 49-year-old co-founder of a staggeringly successful semiconductor company called Broadcom. Nicholas is one of the world’s wealthiest men—this year, Forbes put his net worth at $1.8 billion. At a dinner held that evening at the Beverly Wilshire hotel, Nicholas, who helped plan the event, gave a poignant speech and showed the assembled crowd his favorite episode of Perry Mason. Leach and Nicholas’s mother, Marcella, were married when Nicholas was a young boy, and although Leach had been ill for several years and died at 93, Nicholas, say friends, was distraught about the death of the man he called his father. A few days later, Nicholas’s personal lawyer, Bill Hake, announced that Nicholas—who had a reputation as a hard-core partyer—was checking himself into the Betty Ford Center for a month of alcohol rehabilitation. “A recent blood work-up showed a liver panel well out of the normal range,” said Hake. He added, “Nick is seeing the value of life, weighed against the death of his father.” But Nicholas, whose full name is Dr. Henry Thompson Nicholas III (he has a Ph.D. in electrical engineering), also saw something else coming. For at least the past year, he had worried that federal prosecutors were investigating him, and indeed they were. Less than two months after the funeral, on June 5, the Justice Department unsealed not one but two federal indictments. Nicholas was charged with securities fraud for his role in an alleged scheme in which Broadcom deceived its shareholders about how much it was paying employees by lying about the timing of stock-option grants. According to the government, the company’s former chief financial officer, Bill Ruehle, who was also indicted, had referred to the scheme as the “golden goose,” and, indeed, for years this practice served to wildly inflate the profits Broadcom reported to the public. It’s the other set of charges, though, that makes Nicholas’s story into something more—quite a bit more—than another entry in the annals of white-collar crime. In an indictment for drug trafficking, the government paints a picture of a drug fiend who hired prostitutes for himself and his customers, used cocaine, methamphetamines, Ecstasy, prescription painkillers, and more—and spiked the drinks of other technology executives without their knowledge. Nicholas pleaded not guilty, and in 2009 a jury will most likely decide his fate on all the charges. But since 2000, more than a dozen people—two of whom were paid off by Broadcom and agreed to keep their allegations secret, according to prosecutors—have filed lawsuits, draft complaints, or supporting declarations that make the government’s allegations seem like the PG-rated version of affairs. Among them: that Nicholas built a sprawling den of iniquity under his multi-million-dollar Laguna Hills mansion. “He wanted to live above ground with his wife and three children, with the option to go below ground to immerse himself in his cocaine, ecstasy, Viagra, speed, prostitutes, and party friends,” alleged the contractors who helped build what they called “the Lair.” On June 5 in Santa Ana federal court, prosecutors argued that Nicholas, who is six feet six inches, should be denied bail due to his propensity for witness intimidation (he has said he “could have people killed,” according to prosecutor Ken Julian), the ease with which he could flee (Nicholas owns an Italian-made Agusta helicopter as well as a Gulfstream IV and a Cessna Citation), and the potential threat posed by what the judge referred to as his personal army. (Nicholas’s personal security manual requires that three armed guards—who are often former law-enforcement or military men—patrol his home.) Instead, the judge released him on $3.4 million bail and allowed him to return to a $63,000-per-month program at a luxury rehabilitation center called Cliffside Malibu. Now Nicholas, who in the past couldn’t be silenced (he once proudly announced, “I am a media-relations nightmare!,” and he was), has been shut down by his lawyers. He would not comment for this story. Indeed, few would comment on the record, partly because Nicholas has a reputation for being vindictive. (As one person told me, “If I talk to you, I either get a date with the U.S. attorney or a date with Nicholas’s lawyers.”) A few loyal friends say that Nicholas is being wrongly prosecuted, and that the numerous lawsuits filed against him are just “extortion,” as Chris Berman, a former Navy seal and friend, puts it. (And it does seem that there is some of that.) But, for the most part, there’s a surprising lack of surprise—or sympathy. “I don’t know if the stories are true, but they are believable if you know him,” says one person who used to work with him. “He deserves whatever he gets.” “Do you feel sorry for the shark at the end of Jaws?” asks another person who knows Nicholas. A former Broadcom employee says that on the day the indictments were unsealed his in-box was flooded with messages from his former co-workers and industry people. We knew it!, they all said. If the allegations are true, the saga of Dr. Henry Nicholas is sex and scandal writ large. Pry under the shocking surface, though, and you also find even more unsettling questions. What secrets can lurk beneath the smooth façade of a successful corporation? What can happen if someone with the imagination of a sex-starved teenage boy and no personal restraints can fuel his fantasies with a billion dollars (and then some)? And, finally, what is it about human nature? “Henry Nicholas is a paradox: a man with a self-destructive personality who created something great,” says Roger McNamee, the well-known technology investor, who met Nicholas in the early years of Broadcom. Because no one suggests that Broadcom—whose chips are used in everything from Apple’s iPhone to Nintendo’s Wii, has revenues approaching $4 billion, and employs 6,800 people—isn’t something great, or that it would have existed without Henry Nicholas. “Every character trait is a double-edged sword,” says a former Broadcom executive. “The strongest point has a counterpoint.” The arraignment of Henry Nicholas on criminal charges wasn’t the first time he burst onto the scene in a blaze of publicity. On April 17, 1998, in the middle of the Internet frenzy, Broadcom—which stood out from the dot-coms of the day by virtue of the fact that it had actually produced profits—went public at $4 a share. The stock more than doubled, and by the end of the trading day, Nicholas and his co-founder, a quiet man five years his senior named Dr. Henry Samueli, also an electrical-engineering Ph.D., were each worth $600 million. “One of the hottest initial public stock offerings ever,” raved The New York Times. These were the days when technology stocks only went up, and some six months later, Nicholas called a venture-capitalist friend. “ ‘I’m a billionaire! This is amazing! It worked!’ ” he exclaimed, this person says. “He was like a kid. I said, ‘Don’t take it for real. It ain’t real.’ ” Nicholas’s friend didn’t mean that the money itself wasn’t real, but rather that it could give life a dangerous aura of unreality. In some ways, Broadcom—which makes chips that enable voice, video, data, and multi-media to travel at high speeds to just about any destination, from cable set-top boxes to wireless networks—is a classic high-tech start-up story. In 1991, Nicholas and Samueli each invested $5,000 and went to work in Nicholas’s Redondo Beach condominium. Nicholas was the C.E.O., while Samueli was the chief technologist. Nicholas, like many entrepreneurs, didn’t grow up with much. He was born in Cincinnati in 1959. His birth father, Henry T. Nicholas Jr., an attorney for the I.R.S., struggled with alcohol problems. (He died in 1986 at age 57.) Nicholas told the Los Angeles Times that his father was “fairly abusive” to his mother, Marcella. When Henry was four, his parents separated, and Marcella eventually decamped for Santa Monica with him and his younger sister, Marsalee. Marcella later told friends the story of how young Henry bonded with Robert Leach, whom she married in 1967. “Mom, he knows my name!” he said when they were first introduced. In 1977, Nicholas, who went by “Nick” from a young age, graduated from Santa Monica High School, where he had participated in the “Strategy and Tactics” club as well as debate, and was named an outstanding student. He went to the United States Air Force Academy, near Colorado Springs, but told people that he dropped out after three years because he was too tall to be a fighter pilot. He got his B.S. in electrical engineering from U.C.L.A. in 1982, and his master’s in 1985. Continued (page 2 of 7) During Nicholas’s years at U.C.L.A., his family suffered a tragic loss. In November 1983, Marsalee was murdered by an ex-boyfriend, who had been stalking her. (He threatened to commit suicide, then shot her in the head when she tried to stop him.) Marcella and Robert Leach, along with the late Ellen Griffin Dunne, ex-wife of Vanity Fair special correspondent Dominick Dunne and mother of Dominique Dunne, also killed by an ex-boyfriend, founded Justice for Homicide Victims, which fights for victims’ rights. Nicholas never talks about Marsalee’s murder, even to close friends, but over the years he has devoted time and considerable money to the cause. Henry Nicholas met Henry Samueli in the early 1980s when the two men were working at a defense contractor called TRW. (The military is often on the leading edge of whiz-bang technology.) Samueli was also the brilliant product of middle-class parents. He was born in Buffalo, New York, to Polish Holocaust survivors, and got his Ph.D. from U.C.L.A. in 1980 at age 25. Samueli, who is an academic at heart, left TRW in 1985 to become a professor. He persuaded Nicholas to join him as his first Ph.D. student. (Nicholas, who was more interested in business, was finally granted his Ph.D. from U.C.L.A. in 1998, just before Broadcom went public. Dissertation title: “Architectures, Optimization Techniques, and VLSI Implementations for Direct Digital Frequency Synthesizers.”) When Nicholas was at TRW, he met Stacey Feller, a fellow electrical engineer five years younger than he. She grew up in Los Angeles, and people who know her describe her as “very nice”—the same words people use to describe Henry Samueli. Like Nicholas, she was tall and thin. She seemed innocent and demure—one friend described her as “super naïve”—and was athletic enough to keep up with Nicholas on long bike rides. In 1987, the two were married. In 1993, the couple’s first son, Brett, was born, followed by a second son, Matthew, and in 1998, a daughter, Shelby. In 1988, Samueli began to consult part-time for another start-up company, PairGain Technologies. He brought Nicholas in as the director of micro-electronics. Nicholas was a controversial figure. He has said that he left PairGain because the company didn’t want to pursue his ideas. But three former PairGain employees with knowledge of the situation say that is not the whole story. PairGain discovered that Nicholas had started cultivating his own business interests on company time, they say. Nicholas left the company, he has admitted, “with a lot of hard feelings all around.” Man and Superman Nicholas also developed a reputation for extreme arrogance. One PairGain employee used to say that he was convinced that one day he would pick up the paper and see that Nicholas had been found, a pile of bones and flesh, at the bottom of a 10-story building—not because he had committed suicide, but because he had tried to fly. But it probably took someone with limitless belief in himself to start Broadcom, which competes in an industry dominated by Intel—whose longtime C.E.O., Andy Grove, coined the motto “Only the Paranoid Survive.” Nicholas, from the beginning, did things his own way. He based the company not in Silicon Valley, where everyone else was, but in Orange County, the sun-drenched suburban sprawl just south of Los Angeles. At a time when dress codes were ostentatiously casual, Nicholas wore three-piece suits—and insisted that others at Broadcom suit up as well. His imperious manner led some Wall Street analysts to call him “Czar Nicholas.” Nicholas told others at Broadcom that he was a rare personality type that some psychologists call “the Mastermind.” (The Myers-Briggs and Keirsey personality tests, which are big in M.B.A. circles, group people into 16 different personality types, to which Keirsey gives labels, such as the Healer and the Inspector; Masterminds make up just 1 percent of the population.) Masterminds are supposed to be calculating perfectionists who have a disregard for authority—as well as for the feelings of others. “Great entrepreneurs generally have a single-minded focus,” says McNamee. “Often they don’t realize there might be another point of view.” At least in the early years of Broadcom, Nicholas’s arrogance was accompanied, maybe even exceeded, by his work ethic. One person who worked with Nicholas says that he slept three or four hours a night, max. “Nick was driven to a fault,” says this person. “But because he works those hours, he can deliver more, faster, better than anyone.” Nicholas liked to tell the press about how his air-force training had taught him to go for 78 hours with only a few hours of sleep—or about how he and Stacey decided to induce the birth of their daughter so he could leave for a presentation to investors when Broadcom was about to go public. For their 10th wedding anniversary, which they celebrated at the Grand Wailea Resort, on Maui, in 2000—three years late—Nicholas invited the executives of a company he was considering acquiring to join them for dinner one night. “The only thing that will make you happy is to set a goal, then kill yourself to achieve it,” he told Fortune in 1999. “I have a theory that the elation you feel is directly proportional to the sacrifices you make.” Nicholas demanded the same level of devotion from those who worked for Broadcom. One investor remembers going to a meeting there around nine a.m. There were only a handful of cars in the parking lot, so he asked if people were traveling. He was told that, no, it was common to have people come in a little later from a short nap because they’d often worked until six or seven in the morning. Nicholas held meetings at three a.m.—actually, he held meetings any hour, any day of the week, at his whim. He liked to invoke a military phrase, R.H.I.P., or “Rank has its privileges.” Nicholas ruled by fear, not love. “He could get really nasty,” says a former employee. “He was like a drill sergeant. He’d get one inch from your face and use his body to the full effect of what a large body can convey.” Once, at a biweekly meeting for executives, this ex-staffer recalls, Nicholas was displeased with the assistant controller’s report. So he rolled up the papers into a thick bar and smacked the guy over the head with it. “You could describe my approach as scorched earth,” Nicholas told a reporter in 2000. “It can be brutal, but my job is to make sure that if we’re going to enter a market, our employees are ready to take on the sacrifices in their lives that’ll be necessary to win.” And Nicholas did his best to look the part of the alpha-male C.E.O. Thanks to an aggressive workout regimen, he bulked up, and he grew the nerdy handlebar mustache out into a goatee just when goatees were becoming hip. At a 1999 press conference announcing a $1-million-plus donation to the University of California at Irvine crew team, he challenged the team captain to a spur-of-the-moment pull-up contest. Nicholas won. He was the geek who became Superman. If there was an element of angry teenage boy—he liked to joke they’d almost named the company Broads.com, and he bragged to reporters about his passion for heavy-metal bands like Metallica and Korn—well, great entrepreneurs were supposed to be eccentric. The balance at Broadcom was to be provided by Samueli, who led the engineering team. Stock analysts called the two men “good Henry and bad Henry,” or “white hat and black hat.” In a 2000 interview, Samueli shrugged off Nicholas’s reputation. “Nick’s gained more confidence to be more brash, no question,” he said. “People accept it. We all accept it.” In truth, no one could control Nicholas. Samueli, say many people who worked with them both, was a non-confrontational personality. One person remembers a time when Nicholas stormed into Samueli’s office, which was right next door to his own. He was angry about some slight offense, real or imagined, and he “ripped him [Samueli] out like he was a five-year-old,” says this person. “It was Satan and the nice guy, and Satan was running the show.” But it all seemed to work, at least for a time. Nicholas was “like a cult leader,” his wife, Stacey, allegedly told one of his personal assistants. Cody Acree, a stock analyst at Stifel Nicolaus, who has covered Broadcom since 2000, says, “At the end of the day, it’s about making money, and if he’s delivering, then it’s hard to question the policy.” Continued (page 3 of 7) Money is certainly part of the reason that Broadcom employees took Nicholas’s brutality. It wasn’t that Broadcom paid high salaries. Quite the opposite: it capped salaries at $110,000, which was less than competitors paid. But the company made up for it with the currency of the age: stock options. At one point in early 2000, Broadcom offered an Intel engineer it wanted to hire an amazing $9 million worth of them, according to a lawsuit Intel filed. That Broadcom was aggressive with stock options wasn’t a secret, but the precise mechanics of the operation certainly were not well understood by outsiders. In many cases, Broadcom made sure its options were worth real money on the day they were granted, alleges the government. They did so by choosing a day in the past at which the stock had closed at a lower price than the grant date. An incident that later became central to the government’s allegations involved the hiring of an engineer named Mehrdad Nayebi in the spring of 1999. Nayebi claimed he was promised a grant of 120,000 options priced at $88.375, which was Broadcom’s stock price when the company was getting serious about making him an offer. But by the time he actually joined the company, his options were instead priced at $95.75. Nayebi e-mailed Nancy Tullos, Broadcom’s vice president of human resources, to complain, saying that the lower price had been a “major key deciding factor” in his decision to accept a job at Broadcom. According to a plea agreement Tullos later entered into with the government, Broadcom’s options committee—which consisted of Henry Nicholas and Henry Samueli—granted Nayebi his options at the lower price. It was Nicholas, the Securities and Exchange Commission would later allege, who was the “final decision-maker and the driving force behind Broadcom’s options backdating.” (Samueli’s defense has maintained that Samueli reasonably relied upon management and other professionals to take care of the proper accounting of options.) This would all be fine if Broadcom had told shareholders what it was doing. Under the tortured rules that governed stock-option accounting at the time, if you granted an option at $10 a share, and the stock was trading at $10 a share, you didn’t have to reflect a compensation charge. But if you chose a date two weeks in the past because the stock was selling for $6 that day, thereby making the option worth $4 the very day the employee got it, you had to reflect $4 of compensation expense in your financial statements. That would decrease the profits you reported, and might result in a lower stock price. If anyone inside Broadcom paused to think about what was happening, they didn’t think, “We’re lying to shareholders.” They thought, “We’re creating the New Economy, and we deserve it,” says a former employee. Not that many paused to think. In August 2000, Broadcom’s stock hit $182.42 a share, valuing the company at more than $60 billion—more than the combined value of Amazon and Yahoo today—and making the two Henrys worth over $10 billion each. The Orange County Register reported that the average Broadcom employee was worth $5.81 million! The parking lot was full of Lamborghinis and Porsches. The Henrys began not only spending money but also giving it away. Samueli donated $30 million to U.C.L.A.’s engineering school and $20 million to U.C. Irvine’s engineering school, both of which were renamed in his honor. Later, Samueli and his wife, Susan, paid $70 million to Disney for the Anaheim Ducks hockey team. Nicholas began donating to political campaigns—he has been one of Arnold Schwarzenegger’s top donors. He bought an aviation company called Prestige Air, which owned three jets and a helicopter. (Prestige Air became part of a lawsuit with the I.R.S., which contended that the Nicholases owed some $4.4 million in back taxes and penalties in part because they improperly wrote off the losses from Prestige Air.) Nicholas also bought toys, among them a Harley-Davidson and a black Lamborghini Diablo. And the Nicholases began to renovate their house. Since the mid-1990s, they’d lived in one of the nicest areas of Laguna Hills, a neighborhood called Nellie Gail Ranch that features 20 miles of equestrian trails, and where a 5,000-square-foot house is considered small. A week after Broadcom’s I.P.O., they bought a much bigger property a few doors down in the same cul-de-sac—called Rodeo Circle—for $1.7 million. They immediately began a remodeling project. The initial budget was $400,000, but the projected bill would balloon to more than $30 million, according to a lawsuit the contractors drafted later—and the project would become the physical manifestation of the dark fantasies in Nicholas’s mind. If You Build It, They Will Come Imagine, if you will, a secret warren of rooms filled with any amenity you could ask for—from top-of-the-line sound equipment to a Jacuzzi—decorated in an extravagant style that could be described as Harem Fantasy Gone Wild. The ceilings are over 12 feet high. One room has a central column covered in 24-karat gold leaf. A series of large buttresses, also covered in gold, radiate from the central column, which in turn is surrounded by seating for 10. Fabulous materials and artifacts cover every square inch: brocade from Spain, lustrous red velvets, arches carved in India, statues of Buddha and Shiva, Persian rugs. One person who worked on the space is almost at a loss for words when asked to describe it. “It was so over the top,” he says. “You have never seen anything like it.” “Nick wanted me to be as creative as possible,” says Russ Butler, the artist and designer who decorated the space. “More and more was better.” He adds: “I wish the whole world could have seen it.” While the average investor in Broadcom never heard a whisper, by as early as 2000 the Wall Street community was rife with rumors about Nicholas. A story began to make the rounds that, during a meeting with a major investor, he had a nosebleed—which was interpreted as a symptom of a cocaine habit. Nicholas’s former assistant at Broadcom, a woman named Beth Kuhns, told the F.B.I. that when she began working for him, in 1998, he was “controlling and detail-oriented,” and required her to work “long and intense hours,” but was otherwise normal. But, she said, he soon began requiring her to withdraw cash from his bank account. He wanted to have at least $10,000 in a locked desk in his office or in a black bag that he carried with him. Once, he gave her an envelope with “thousands of dollars in cash in it and directed her to meet a woman in Broadcom’s offices.” The woman took the envelope and gave Kuhns another, which, in its drug-trafficking indictment, the government says contained “controlled substances.” While the government’s contention that his drug use amounted to a narcotics conspiracy—i.e., distributing drugs—has not been proved, it is hard to deny that Nicholas has used drugs. Maybe his problems were brought on by his desire to operate at a superhuman pace. Maybe, as one person who hung out with him says, “his money came too fast and it opened the door to things he wanted. He was married, he had kids, but he saw something else out there that money could get him. He was kind of a geeky dude. I don’t see him going out with girls in high school, and now here he is with the world at his feet.” Or maybe a woman named Mirjana Dumnjak, who knew Nicholas during this period, puts it best. “You know what they say about borderline geniuses?” she asks. “They’re also borderline crazy.” Whatever it was, Nicholas changed quickly. Within about a year and half of Broadcom’s I.P.O., he went from what one neighbor says was a “super-nice guy who just wanted to make friends” and who had barbecues in his backyard to someone who was “just out there.” Says this person, “I think he’s a victim of bad judgment and bad friends.” Whether his friends were a bad influence or not, it is true that Nicholas started hanging out with some new people at that time. Among them was a charismatic contractor named Roman James, who began the renovation project at the Nicholases’ in the spring of 1998. (James is Dumnjak’s ex-boyfriend.) At the time, James was in his early 30s and almost as tall as Nicholas. He is a good-looking man with dark hair and blue eyes, an easy charm, and a quick wit. He may not have had much money, but Dumnjak and other beautiful women would stop by his various jobs. He’d designed a neighbor’s pool, which Nicholas admired, and he talked his way past the New York and London architecture firms that Nicholas was going to hire. He also began to work on Henry Samueli’s home. Continued (page 4 of 7) Nicholas and James, along with another man, Bill Nutton, who had met James while both were working in Las Vegas, began to hang out together. James gave Nicholas advice on how to be more cool, says one person, who adds that Nicholas had a “boy crush” on James. Dumnjak says that James, in turn, decided he could be Nicholas’s “party adviser,” as she puts it, not merely his contractor. (Of course, Nicholas wasn’t in the habit of taking advice from others. “Once he got out in the world, he approached going out like a hostile takeover,” says a person who spent time with him.) In a declaration taken in a lawsuit filed later, Nutton said that he, Nicholas, and James began riding Nicholas’s Harley-Davidsons together and “partying quite extensively,” both at the jobsite and on frequent excursions. They took Nicholas’s plane to Las Vegas, where Nicholas eventually acquired a condominium on the 32nd floor of Turnberry Place. Nicholas even bought James a car: a red Ferrari. The contractor, says one observer, “was living very high on the hog.” Dumnjak, who says that she accompanied the men to Las Vegas on one occasion, recalls that when Nicholas hired prostitutes he “was like a guy who hasn’t eaten in 10 days and finally saw a steak.… He was kissing them like a high-school guy would kiss his girlfriend.” According to Dumnjak, she once asked him why he behaved this way, given his family and his apparent respect for his wife. (“He was always very complimentary of her,” she says.) “I love my wife, but it’s just something I want to do,” he replied. James and Nutton weren’t the only members of Nicholas’s growing entourage. He hired Craig Gunther, a U.C.L.A.-trained engineer who had a law degree, to manage his personal affairs and money. Within a few years, Gunther and his wife moved into what had been the Nicholases’ first house on Rodeo Circle. In the fall of 1999, Nicholas also hired as his personal assistant a young man named Kenji Kato, who was getting his joint M.B.A. and J.D. from Pepperdine University, in Malibu. Kato helped arrange what he described as “lavish events, dinners, concerts, parties fit for only Billionaires.” As part of a lawsuit he would later file, Kato observed that “it was normal for him [Nicholas] to attempt to have sex with as many women as possible.” It seems that Nicholas eventually became disillusioned with some of the people who wanted to be his friends. In 2004, he told a reporter, “There is a whole cottage industry of parasites who make it their business to be friends of billionaires. The problem is that because they have an agenda, they are often better with you than your real friends, who don’t know how to act with you anymore.” But that was later, and for a short period it was all just a party. To celebrate his 40th birthday, in October 1999, Nicholas paid the band Orgy—an L.A.-based group that described itself as “nu Metal”—$50,000 to play. He had a huge stage built at the Rodeo Circle house. There were gigantic ice sculptures, and the guests included bankers, lawyers, people from the neighborhood, and what one attendee describes as “women by themselves dressed scantily with a lot of makeup.” “It was the most surreal scene ever,” says another attendee. Before the party, according to one pal, Nicholas bragged that nine different women he was dating—none of whom knew about the others—were coming. At one point, he jumped up on the stage, ripped off his shirt—“He’s cut and he knows it,” says another attendee—and sang with the band. He had one request: “My birthday present from you all to me: Please forget this night.” Stacey didn’t appear to relish her new lifestyle. She did have breast implants, say three people who know her. “She was trying to be more of the cool chick,” says Dumnjak. But Stacey, whom everyone describes as unpretentious, refused to drive her new Mercedes, instead sticking with an old forest-green Chrysler minivan. She still shopped at Target, and told one person that she’d trade it all in to be back in the condominium in Redondo Beach and have her husband home the way he used to be. There’s a twist to Nicholas’s story, according to some of the allegations against him, that makes it something darker than a tale of a man whose personal eccentricities got the better of him. The government and former employees allege that he thought he could use drugs and prostitutes to get an advantage in business. As prosecutor Andrew Stolper put it, Nicholas was “not in the business of making a living by dealing drugs. He was in the business of using drugs for his business.” Kenji Kato, who helped organize events for Broadcom, also alleged in his lawsuit that he would see Nicholas put “powdered ecstasy pills into the drinks of his customers. I would see him usually carefully measure the dosage.… I had to look the other way when Nicholas secretly ‘spiked’ clients, prospective clients and third parties’ drinks with illegal drugs.” Mehrdad Nayebi—the engineer who was granted the stock options—contended in a draft lawsuit in late 2000 that Nicholas also “had a practice of hiring prostitutes to ‘greet’ visiting customers, other business associates, and for himself.” Nicholas called the prostitutes “professional saleswomen,” says another person who did business with Broadcom. One former executive recalls getting out of the elevator at Broadcom’s offices and saying to himself, “She’s a pro!” He adds, “I felt like I just walked out of a Las Vegas nightclub. Am I really on the third floor of an office building in Irvine?” Dumnjak says that Nicholas used to tell her that “I can do all this stuff and be productive the next day.” But if Superman could do that once, he soon began to slip. His assistant, Beth Kuhns, told the F.B.I. that he began to “disappear for periods of time and miss important meetings.” She would “receive incoherent calls … where he would speak nonsense” to her. She eventually couldn’t take it anymore and hired a lawyer to arrange her exit from the company. But, Kuhns claimed, when she met with Gunther and Nicholas to negotiate a settlement, their behavior was so erratic that her lawyer called off the meeting. Kuhns and her lawyer instead worked out a settlement with Broadcom, separate from Gunther and Nicholas. In June 2002, Kuhns left Broadcom, which paid her $1 million of shareholders’ money in exchange for her silence, according to prosecutors. As for Mehrdad Nayebi, he was fired (for “incompetence,” according to a Nicholas lawyer), but he too got money: stock options worth over $7 million at the time—again, money that came out of shareholders’ pockets—also with the provision that he keep his allegations quiet. (Broadcom has noted that it routinely includes confidentiality provisions in employment agreements, and has said that the core of each of these settlements had nothing to do with allegations about Nicholas.) Nicholas’s company was also slipping by this time—badly. The dot-com bubble had burst in 2000, and what Nicholas later called the “worst downturn in semiconductor history” was well under way. Broadcom lost money in 2000, 2001, and 2002. Its stock price—as high as $182.42 on August 24, 2000—began to plummet and eventually hit a low of $6.47 on October 7, 2002. One board member later told The Wall Street Journal that “no one was really at the wheel.” But if neither Broadcom’s performance nor Nayebi’s and Kuhns’s accusations jolted the board into action, something else may have. They found out about the lair. It had started innocently enough. Dumnjak claims it was her idea for a tunnel leading down to a series of interconnecting rooms between the house’s library and the gym, where Nicholas was building a 2,000-square-foot sports bar he would call Nick’s Café. In the library, which was decorated in dark custom-carved woods and green granite, a hinged panel opened toward the passageway. The tunnel, says Butler, had a “coolness factor”: the faux stone walls had impressions of skulls carved into niches, which were lit by candelabras. “It was that castle-y look that guys like,” he says. Butler, who still counts Nicholas as a friend, says that in 2000, after a wild party was shut down by neighbors’ complaints, the project was expanded to create a place where Nicholas could carouse in private. Continued (page 5 of 7) Butler agreed to comment for this story because he is upset that his work, which he says was “beautiful,” is being described as a sex lair. But in their lawsuit, the contractors alleged it was exactly that. In August 2000, they said, Nicholas decided, unbeknownst to his wife, to expand the tunnel into a “secret and convenient lair in which he could indulge his appetite for illegal drugs and sex with prostitutes.” Building the lair presented an engineering challenge because the Nicholases’ house is on a hill that cuts sharply down toward the horse trail behind the house. Nicholas grew frustrated with the slow pace of the secret construction, and he took Stacey to Hawaii for a week’s vacation. During that time, hundreds of men worked around the clock. The contractors designed a multitude of entrances and exits, says one person familiar with the construction: a staircase in the sports bar that lifted up, Munsters-like; an entrance covered by rock near the wine cellar; even an exit onto the horse trail, disguised by a faux shed made to resemble other manure-pickup sites on the trail. Not surprisingly, neighbors, who had grown impatient with the construction, began to complain, particularly when they found their access to the horse trail blocked by armed guards. Says one, who thought maybe a helicopter pad was being built, “It was hard to miss that something was going on, but no one knew what.” They called Laguna Hills city officials, who discovered that there was no permit for the construction. The project was promptly shut down. When a Los Angeles Times reporter called Nicholas about the neighbors’ complaints, he explained he was building a pump house to deal with water overflow along the horse trail. “I wanted to make the horse trail around our property the nicest in the whole community,” he told the reporter. When construction was halted, Nicholas, say the contractors, decided to build a backup. He rented space in a warehouse in a gritty industrial district of auto-body shops about a five-minute drive from his house. Inside, he had the contractors build an exact replica of what he wanted under the Rodeo Circle house. Because the space under his house was irregularly shaped, the contractors even built out the rectangular warehouse space to identical irregular specifications, says one person familiar with the work. This was the Ponderosa, or “the Pond,” as it came to be known. According to Butler, who says the décor was inspired in part by his visit to Burma, a visitor would enter through a passageway where the ceilings were tented with fabrics. Jewel-like hanging lamps spotlighted a large brass statue of Ganesh. Then you would step down into a large octagonal room dominated by a central column. The ceiling of that room was a gilt lattice with a star pattern, backlit with sophisticated lighting that could strobe and change color. Butler used mostly red and gold in the decorating scheme because, he says, it was “masculine and very imperial.” There was a flat-screen TV that was one of the largest available at the time, and a bar made from an antique European buffet re-covered in granite. Nicholas came to like the Pond so much that he kept it. And while Butler says it was an innocent spot—he describes it as a “symbiosis between spirituality and technology”—others view it a little differently. The government alleges that Nicholas “hosted numerous parties” at the Pond “during which he supplied controlled substances such as cocaine, ecstasy, and marijuana to his guests.” The contractors called it Nicholas’s “own personal brothel.” There was just one rule for those who came to party at the Pond, says one person: you couldn’t leave before Nicholas did. It was at the Pond that Stacey caught Nicholas, according to the contractors. They said that Nicholas took her to Beaver Creek, Colorado, where the family owned a condominium, for vacation in May 2002. He left early, blaming work, and headed to the Pond. Stacey returned home, too. She’d found out about the Pond—it wouldn’t have been hard for a smart wife to figure out something was up with her husband—and she headed over. There she “caught Nicholas having sex with a prostitute while high on drugs,” said the contractors, in a red-and-gold room with a carved wooden ceiling and a gigantic bed. She filed for divorce. Soon, a furious wife wasn’t Nicholas’s only problem. In the fall of 2002, a group of seven contractors who had worked on the project, including James, hired a lawyer to draft a lawsuit against Nicholas. The contractors contended that Nicholas used “manipulation, lies, intimidation, and even death threats” to stiff them on the bulk of the money they were due. He also allegedly told them he’d have them killed if they ever talked about him or the work they did. The lawsuit wouldn’t become public until years later. Broadcom’s shareholders never knew. But Broadcom’s board did, because the contractors also named Samueli and Broadcom itself in the lawsuit. Perhaps they thought that the pressure those parties would bring to bear on Nicholas increased their chances of getting paid, and it seems it did. James Traut, the lawyer for the contractors, recalls an emergency Sunday-afternoon meeting with lawyers for Nicholas, who had just returned from celebrating his birthday in Spain. Nicholas settled the complaint for roughly $3 million, says one person. Paying the Piper On January 23, 2003, Nicholas announced his resignation to investors on a conference call. “Effective today I have resigned as president and C.E.O. of Broadcom. This has been a difficult personal decision for me, and one that has been driven entirely by personal issues relating to my family separation and divorce.” That was no lie. After all, Nicholas did have serious family issues. But it doesn’t appear to be the whole truth, either. Some members of Broadcom’s board had grown disillusioned with Nicholas due to his performance, and the company started exploring the idea of looking for a new C.E.O. in the fall of 2002. In November, Broadcom appointed a board member, Alan E. “Lanny” Ross, as interim chief operating officer. Within a few weeks of Ross’s arrival, the company laid off 500 people to cut costs. Around the same time, it found out about the contractors’ suit. Nicholas took time off in December and January before finally announcing his departure in late January. Publicly, Nicholas and Stacey talked about reconciling, but in 2006, divorce proceedings began in earnest again. She stayed in the Rodeo Circle house. The lair was demolished. Nicholas moved to a Tuscan-style mansion in a gated community in Newport Coast, just to the north of Laguna. The divorce has clearly been acrimonious, which isn’t surprising, given that the two have to divvy up, among other assets, 32.9 million shares of Broadcom, worth more than $720 million at the time of this writing. The divorce file has been sealed, but according to the Los Angeles Times, it contains “competing allegations of drug abuse and infidelity.” In 2006, Nicholas filed a petition alleging that Stacey had formed a company called Captain Enterprises “to compete directly” with several companies Nicholas owned. These new companies existed to manage Stacey and Nicholas’s personal affairs. Nicholas accused Stacey of hiring his people and requested that she not waste the assets of their joint trust. The petition was eventually dismissed. Nicholas seems to have continued on a downward spiral after leaving Broadcom. Kenji Kato, in his lawsuit against Nicholas, alleged that over the seven years he worked for Nicholas he struggled with Nicholas’s “increasingly abusive and intolerable conduct” as his “sexual cravings and drugs overpowered his life.” He said, “At times, Nick could not remember what he ordered me to do the day before … his thought processes were impeded by his constant drug abuse.” Kato added, “It was very sad to see him like this, the Nick that I first met was much stronger and healthier than the person I ultimately came to work for.” Like some of the other members of Nicholas’s entourage, Kato doesn’t seem to be a saint. He has admitted that he has used drugs, too, although he claims that the “first time I used cocaine was when Nick shoved a tiny spoon up my nose because I was falling asleep while he was talking to me.” After he quit working for Nicholas, in the spring of 2006, his lawyer presented a demand for $9 million, telling Nicholas that, if he did not agree, Kato would go public with his allegations. Nicholas appeared to settle the suit for $3 million but then backed out of the negotiations and filed his own lawsuit against Kato alleging extortion and asking for a restraining order. Kato ended up filing his case anyway, in November 2006. Continued (page 6 of 7) Four other people who worked for Nicholas filed supporting declarations in Kato’s lawsuit, all of which paint a sordid picture of life at the Newport Coast house during 2005 and 2006. Gerald Wada, who worked for Nicholas for four months in 2006, says that he was regularly “ordered to fill up up to 20 balloons of nitrous oxide and deliver them to Dr. Nicholas, or when I was required to clean up after Dr. Nicholas, I frequently found remnants of usage of drugs, such as a straw and plate, residue of cocaine, nitrous oxide balloons, and alcohol.” Todd Murakami, who was Nicholas’s personal assistant and security guard during that same period, says that he would regularly “find bloody Kleenex around the house. We’d have to buy him Saline by the case to rinse his nose out.” But it would be misleading to say that Nicholas has no supporters. Because of Marsalee’s murder, he had thrown himself passionately into the cause of criminal justice, and there is a lot of loyalty to him among the community of people who have lost loved ones to homicide. His biggest battle was in the fall of 2004, when California was about to pass a law known as Proposition 66. It would have limited the state’s “three strikes” rule, by which someone who has been convicted of two violent crimes can be sentenced to life for a third felony. That’s when Nicholas, at his mother’s urging, got to know Steve Ipsen, a veteran prosecutor who was doing his best to thwart Proposition 66. The measure looked like it was going to pass until Nicholas got involved—the weekend before the Tuesday, November 2, vote. “When Nick is into something, he’s into it,” says Ipsen, and indeed, over a frantic weekend, the two men cut a deal to take over the radio airwaves—paid for by some $3 million of Nicholas’s money—and put together two ads. Nicholas even sent his plane to Oakland to get former California governor Jerry Brown to record an ad. The ballot issue, which was supposed to pass by a considerable margin, didn’t. “The truth is: he did it,” says Ipsen about Nicholas. A few years later, on September 25, 2007, Nicholas flew his private jet to Soledad for the parole hearing of Kerry Michael Conley, who was convicted in 1985 of the murder of Marsalee. At least 100 members of victims’ groups also protested Conley’s parole in front of the prison. (The parole was denied, and Conley died last winter in prison.) On the way home, Ipsen introduced Nicholas to a woman named Shari Martin, whose son had been murdered, and who was starting her own chapter of a group for relatives of homicide victims. Nicholas promptly wrote her a check for $10,000. “I didn’t ask,” she says. “He volunteered it.” She sees a very different Henry Nicholas. “The man is a genius, but he comes down to our level,” she says. Among other awards, Nicholas has received the Ronald Reagan Award for Pioneering Achievement in Criminal Justice. There’s a chance that the allegations about the seamier side of Nicholas’s life would have remained gossip behind the Orange Curtain, as some residents call Orange County, masked by his charitable work, his money, and his army of lawyers, had it not been for something about as far removed from sex and drugs as you can imagine: accounting. Part of the ugly aftermath of the dot-com boom has been a massive government investigation into charges that many companies, such as Broadcom, accounted inaccurately for the stock options they doled out. Thus far, nearly 200 companies have disclosed that they engaged in so-called stock-options backdating, in which they granted options at a date in the past without telling shareholders they were doing so. Roughly two dozen executives have been charged with committing fraud. In a high-profile case, Greg Reyes, who was the C.E.O. of a technology company called Brocade Communications, was convicted of fraud last January and sentenced to 21 months in jail. In some quarters, particularly in Silicon Valley, there is the attitude that the government is trying to criminalize accounting sloppiness, and that, anyway, entrepreneurs like Nicholas create such value that they should be given a pass. “It’s like after the gold rush in America, trying to enforce trespassing laws,” says Ipsen. “Imagine what America could be like if Broadcom, Apple, and the other 250 companies now accused of backdating options didn’t exist? Where would we be?” There are others who argue, however, that there is a simple word for taking something from shareholders without telling them you’re taking it: theft. And if it’s theft, then by one measure, there is no company in America whose executives allegedly stole on as grand a scale as Broadcom did. In June 2006, Broadcom announced that it had received an informal inquiry into its stock-option practices from the Securities and Exchange Commission. At the end of that year, the company announced the results of its internal investigation. It conceded that “certain executives and employees selected numerous grant dates after the fact.” Then, on January 23, 2007—four years after Nicholas’s departure—Broadcom announced that it would take total charges of $2.2 billion in order to account for the cost of the options. That is the largest charge taken by any U.S. company that has been caught up in the options scandal. Broadcom laid the blame on Bill Ruehle, who had resigned as C.F.O. that fall due to the stock-option review; former human-resources vice president Nancy Tullos; and Nicholas, who, the company said, “bears significant responsibility for the lack of adequate controls in the option granting process due to the tone and style of doing business he set.” It’s hard to see how what happened at Broadcom could be chalked up to mere sloppiness, argues the government. In 2000, for instance, the government says that Ruehle and Nicholas were informed by Broadcom’s accountants that they might have to take a big stock-option-related charge. Ruehle told Nicholas, “Obviously, we are not about to let this happen.” And you can see why: if Broadcom had properly reflected the costs, according to the S.E.C. complaint, its 2000 operating income would have been reduced by $442 million. It’s true that Nicholas himself was Broadcom’s largest shareholder, so the practice hurt him too. But it’s also true that he sold more than $1 billion of his Broadcom stock during this period. It was inevitable that prosecutors would start poking around Nicholas’s personal life, given the ample rumors. By the spring of 2007, Nicholas knew that investigators were asking questions. That’s when, on a trip to Oakland on one of his private jets, he took personal adviser Craig Gunther to the back of the plane and, according to prosecutors, accused him of wearing a wire and working with the feds. Gunther told the F.B.I. that Nicholas had said he would “chase him to the ends of the earth” if he “screwed him”—and then struck him in the face. (Nicholas’s lawyers contest this. Although they acknowledge there was an “incident,” they say they don’t accept that “there was [sic] threats made.”) Gunther, it seems, wasn’t cooperating. In fact, that August, prosecutors charged him with a somewhat obscure crime: avoiding currency-reporting regulations that require a bank to file a report when more than $10,000 is withdrawn from an account—in this case, by repeatedly cashing checks to Nicholas’s account for just under the limit. That is, says the government, “consistent with someone purchasing substantial quantities of narcotics.” Indeed, from early 2006 to early 2007, one employee wrote 129 checks on Nicholas’s account, payable to cash, for a cumulative $689,685.42. Only a few were for over $10,000. Almost all were signed by Gunther. Many were cashed only minutes apart. It was a sign of Nicholas’s belief in his own invincibility or perhaps of his addiction that he apparently continued using drugs even after he knew he was under investigation. A video surreptitiously taken of him in Las Vegas on July 24, 2007, shows him looking disheveled in slacks and a button-down shirt open to mid-chest. He appears to be snorting cocaine at a desk in an ornate bedroom with carved-wood mirrors and a carved-wood headboard. At one point, a slender woman wearing a sports bra walks in. (Nicholas’s lawyers have said that the video represents “one incident of recreational drug abuse.”) Continued (page 7 of 7) Prosecutors got wind of another suspicious incident that occurred in the fall of 2007. On November 24, Nicholas, driving his Lamborghini along Newport Coast Drive with his son in the car, crashed into a light pole with such force that he sheared it at the base. Nicholas left the scene, and his bodyguard—a former navy seal named Stephen “Otter” Otten, who had won a Bronze Star for his duty in Fallujah and Baghdad—told the police that he had been driving. He later expensed his ticket to Nicholas. The truth might not have come out but for an anonymous tipster who, saying he had worked for Nicholas, called the police. Nicholas, he said, “was a very powerful man,” and he feared retribution. Today, when you drive through Broadcom’s parking lot in the late morning, it’s filled with employees’ cars, and the cars are staid and serious. Revenues have more than tripled since Nicholas’s departure, and the company now has over 4,000 patents—more than 15 times the number it had when Nicholas left. Under its new C.E.O., Scott McGregor, the company has made a big bet that it will be able to crack the cell-phone market, which could once again make Broadcom a hot, high-growth company, says analyst Cody Acree. But its success is far from assured, and at this point Nicholas’s legacy is not helping. Nancy Tullos has pleaded guilty in the stock-option case and is cooperating with prosecutors. The company paid $12 million to settle S.E.C. charges that it falsified its books, and has had to set up a special litigation committee to deal with all of the shareholder lawsuits coming its way. Henry Samueli pleaded guilty to one count of lying to the S.E.C. He told the commission that he had no role in granting stock options, which was not true. He agreed to pay a $12 million fine and struck a deal with prosecutors for five years of probation, but the judge overseeing his and Nicholas’s case rejected the deal. “The $12 million payment,” wrote the judge, “suggests that Dr. Samueli’s wealth and popularity will allow him to avoid the consequences of his alleged misconduct at Broadcom. The court cannot accept a plea agreement that gives the impression that justice is for sale.” It is unclear what will happen next. Samueli has had to step down as Broadcom’s chairman and take a leave from the board, has been indefinitely suspended from the National Hockey League as the owner of the Anaheim Ducks, and is facing the removal of his name from the U.C.L.A. and U.C. Irvine schools of engineering. As for Nicholas, he is out of Cliffside Malibu and living in another Tuscan-style Newport Coast mansion, which he bought from Marie and Robert Gray, the founders of St. John Knits, for $19.5 million. His travel is restricted to the central district of California. He has burned through lawyers but, in this case, he seems to have settled on his own Perry Mason: Brendan Sullivan, the Williams & Connolly lawyer who defended Lieutenant Colonel Oliver North in the Iran-contra case, among other high-profile clients. Sullivan claims that the questions presented to him for comment were “rife with inaccuracies” and that “Dr. Nicholas intends to defend himself in court, however, not in the pages of Vanity Fair.” All signs say that Henry Nicholas will go to trial. If he’s found guilty of all the charges, he could spend many years in jail. You could argue that it was all necessary, that if Nicholas wasn’t such an extremist he also wouldn’t have built such a successful company. Or maybe not. Says one former executive, “Could he have done what he did without the insanity? I think he could have. He had a wife and kids and a wonderful company, and he let a piece of him take over.” A few years ago, Nicholas, in a moment of self-reflection, said, “All I’ve done is make money. I’ve achieved none of my goals.” Now there’s a chance he never will. Maybe the cartoon characters Calvin and Hobbes sum it up best: “Do you believe in the Devil?” Calvin asks. “You know, a supreme evil being dedicated to the temptation, corruption, and destruction of man?”
The author investigates the allegations about Nicholas’s out-of-control world: the parade of prostitutes, the spiking of clients’ drinks with Ecstasy, and the secret lair he built underneath the Orange County mansion he shared with his wife and kids. by Bethany McLeann April 12, 2008, a funeral was held at the Westwood Hills Christian Church, which is across the street from U.C.L.A., for a man named Robert Warnes Leach. Leach was a screenwriter and teacher who was best known for his scripts for the television series Perry Mason. But the obituaries also prominently mentioned the fact that Leach’s stepson was Henry Nicholas, the 49-year-old co-founder of a staggeringly successful semiconductor company called Broadcom. Nicholas is one of the world’s wealthiest men—this year, Forbes put his net worth at $1.8 billion. At a dinner held that evening at the Beverly Wilshire hotel, Nicholas, who helped plan the event, gave a poignant speech and showed the assembled crowd his favorite episode of Perry Mason. Leach and Nicholas’s mother, Marcella, were married when Nicholas was a young boy, and although Leach had been ill for several years and died at 93, Nicholas, say friends, was distraught about the death of the man he called his father. A few days later, Nicholas’s personal lawyer, Bill Hake, announced that Nicholas—who had a reputation as a hard-core partyer—was checking himself into the Betty Ford Center for a month of alcohol rehabilitation. “A recent blood work-up showed a liver panel well out of the normal range,” said Hake. He added, “Nick is seeing the value of life, weighed against the death of his father.” But Nicholas, whose full name is Dr. Henry Thompson Nicholas III (he has a Ph.D. in electrical engineering), also saw something else coming. For at least the past year, he had worried that federal prosecutors were investigating him, and indeed they were. Less than two months after the funeral, on June 5, the Justice Department unsealed not one but two federal indictments. Nicholas was charged with securities fraud for his role in an alleged scheme in which Broadcom deceived its shareholders about how much it was paying employees by lying about the timing of stock-option grants. According to the government, the company’s former chief financial officer, Bill Ruehle, who was also indicted, had referred to the scheme as the “golden goose,” and, indeed, for years this practice served to wildly inflate the profits Broadcom reported to the public. It’s the other set of charges, though, that makes Nicholas’s story into something more—quite a bit more—than another entry in the annals of white-collar crime. In an indictment for drug trafficking, the government paints a picture of a drug fiend who hired prostitutes for himself and his customers, used cocaine, methamphetamines, Ecstasy, prescription painkillers, and more—and spiked the drinks of other technology executives without their knowledge. Nicholas pleaded not guilty, and in 2009 a jury will most likely decide his fate on all the charges. But since 2000, more than a dozen people—two of whom were paid off by Broadcom and agreed to keep their allegations secret, according to prosecutors—have filed lawsuits, draft complaints, or supporting declarations that make the government’s allegations seem like the PG-rated version of affairs. Among them: that Nicholas built a sprawling den of iniquity under his multi-million-dollar Laguna Hills mansion. “He wanted to live above ground with his wife and three children, with the option to go below ground to immerse himself in his cocaine, ecstasy, Viagra, speed, prostitutes, and party friends,” alleged the contractors who helped build what they called “the Lair.” On June 5 in Santa Ana federal court, prosecutors argued that Nicholas, who is six feet six inches, should be denied bail due to his propensity for witness intimidation (he has said he “could have people killed,” according to prosecutor Ken Julian), the ease with which he could flee (Nicholas owns an Italian-made Agusta helicopter as well as a Gulfstream IV and a Cessna Citation), and the potential threat posed by what the judge referred to as his personal army. (Nicholas’s personal security manual requires that three armed guards—who are often former law-enforcement or military men—patrol his home.) Instead, the judge released him on $3.4 million bail and allowed him to return to a $63,000-per-month program at a luxury rehabilitation center called Cliffside Malibu. Now Nicholas, who in the past couldn’t be silenced (he once proudly announced, “I am a media-relations nightmare!,” and he was), has been shut down by his lawyers. He would not comment for this story. Indeed, few would comment on the record, partly because Nicholas has a reputation for being vindictive. (As one person told me, “If I talk to you, I either get a date with the U.S. attorney or a date with Nicholas’s lawyers.”) A few loyal friends say that Nicholas is being wrongly prosecuted, and that the numerous lawsuits filed against him are just “extortion,” as Chris Berman, a former Navy seal and friend, puts it. (And it does seem that there is some of that.) But, for the most part, there’s a surprising lack of surprise—or sympathy. “I don’t know if the stories are true, but they are believable if you know him,” says one person who used to work with him. “He deserves whatever he gets.” “Do you feel sorry for the shark at the end of Jaws?” asks another person who knows Nicholas. A former Broadcom employee says that on the day the indictments were unsealed his in-box was flooded with messages from his former co-workers and industry people. We knew it!, they all said. If the allegations are true, the saga of Dr. Henry Nicholas is sex and scandal writ large. Pry under the shocking surface, though, and you also find even more unsettling questions. What secrets can lurk beneath the smooth façade of a successful corporation? What can happen if someone with the imagination of a sex-starved teenage boy and no personal restraints can fuel his fantasies with a billion dollars (and then some)? And, finally, what is it about human nature? “Henry Nicholas is a paradox: a man with a self-destructive personality who created something great,” says Roger McNamee, the well-known technology investor, who met Nicholas in the early years of Broadcom. Because no one suggests that Broadcom—whose chips are used in everything from Apple’s iPhone to Nintendo’s Wii, has revenues approaching $4 billion, and employs 6,800 people—isn’t something great, or that it would have existed without Henry Nicholas. “Every character trait is a double-edged sword,” says a former Broadcom executive. “The strongest point has a counterpoint.” The arraignment of Henry Nicholas on criminal charges wasn’t the first time he burst onto the scene in a blaze of publicity. On April 17, 1998, in the middle of the Internet frenzy, Broadcom—which stood out from the dot-coms of the day by virtue of the fact that it had actually produced profits—went public at $4 a share. The stock more than doubled, and by the end of the trading day, Nicholas and his co-founder, a quiet man five years his senior named Dr. Henry Samueli, also an electrical-engineering Ph.D., were each worth $600 million. “One of the hottest initial public stock offerings ever,” raved The New York Times. These were the days when technology stocks only went up, and some six months later, Nicholas called a venture-capitalist friend. “ ‘I’m a billionaire! This is amazing! It worked!’ ” he exclaimed, this person says. “He was like a kid. I said, ‘Don’t take it for real. It ain’t real.’ ” Nicholas’s friend didn’t mean that the money itself wasn’t real, but rather that it could give life a dangerous aura of unreality. In some ways, Broadcom—which makes chips that enable voice, video, data, and multi-media to travel at high speeds to just about any destination, from cable set-top boxes to wireless networks—is a classic high-tech start-up story. In 1991, Nicholas and Samueli each invested $5,000 and went to work in Nicholas’s Redondo Beach condominium. Nicholas was the C.E.O., while Samueli was the chief technologist. Nicholas, like many entrepreneurs, didn’t grow up with much. He was born in Cincinnati in 1959. His birth father, Henry T. Nicholas Jr., an attorney for the I.R.S., struggled with alcohol problems. (He died in 1986 at age 57.) Nicholas told the Los Angeles Times that his father was “fairly abusive” to his mother, Marcella. When Henry was four, his parents separated, and Marcella eventually decamped for Santa Monica with him and his younger sister, Marsalee. Marcella later told friends the story of how young Henry bonded with Robert Leach, whom she married in 1967. “Mom, he knows my name!” he said when they were first introduced. In 1977, Nicholas, who went by “Nick” from a young age, graduated from Santa Monica High School, where he had participated in the “Strategy and Tactics” club as well as debate, and was named an outstanding student. He went to the United States Air Force Academy, near Colorado Springs, but told people that he dropped out after three years because he was too tall to be a fighter pilot. He got his B.S. in electrical engineering from U.C.L.A. in 1982, and his master’s in 1985. Continued (page 2 of 7) During Nicholas’s years at U.C.L.A., his family suffered a tragic loss. In November 1983, Marsalee was murdered by an ex-boyfriend, who had been stalking her. (He threatened to commit suicide, then shot her in the head when she tried to stop him.) Marcella and Robert Leach, along with the late Ellen Griffin Dunne, ex-wife of Vanity Fair special correspondent Dominick Dunne and mother of Dominique Dunne, also killed by an ex-boyfriend, founded Justice for Homicide Victims, which fights for victims’ rights. Nicholas never talks about Marsalee’s murder, even to close friends, but over the years he has devoted time and considerable money to the cause. Henry Nicholas met Henry Samueli in the early 1980s when the two men were working at a defense contractor called TRW. (The military is often on the leading edge of whiz-bang technology.) Samueli was also the brilliant product of middle-class parents. He was born in Buffalo, New York, to Polish Holocaust survivors, and got his Ph.D. from U.C.L.A. in 1980 at age 25. Samueli, who is an academic at heart, left TRW in 1985 to become a professor. He persuaded Nicholas to join him as his first Ph.D. student. (Nicholas, who was more interested in business, was finally granted his Ph.D. from U.C.L.A. in 1998, just before Broadcom went public. Dissertation title: “Architectures, Optimization Techniques, and VLSI Implementations for Direct Digital Frequency Synthesizers.”) When Nicholas was at TRW, he met Stacey Feller, a fellow electrical engineer five years younger than he. She grew up in Los Angeles, and people who know her describe her as “very nice”—the same words people use to describe Henry Samueli. Like Nicholas, she was tall and thin. She seemed innocent and demure—one friend described her as “super naïve”—and was athletic enough to keep up with Nicholas on long bike rides. In 1987, the two were married. In 1993, the couple’s first son, Brett, was born, followed by a second son, Matthew, and in 1998, a daughter, Shelby. In 1988, Samueli began to consult part-time for another start-up company, PairGain Technologies. He brought Nicholas in as the director of micro-electronics. Nicholas was a controversial figure. He has said that he left PairGain because the company didn’t want to pursue his ideas. But three former PairGain employees with knowledge of the situation say that is not the whole story. PairGain discovered that Nicholas had started cultivating his own business interests on company time, they say. Nicholas left the company, he has admitted, “with a lot of hard feelings all around.” Man and Superman Nicholas also developed a reputation for extreme arrogance. One PairGain employee used to say that he was convinced that one day he would pick up the paper and see that Nicholas had been found, a pile of bones and flesh, at the bottom of a 10-story building—not because he had committed suicide, but because he had tried to fly. But it probably took someone with limitless belief in himself to start Broadcom, which competes in an industry dominated by Intel—whose longtime C.E.O., Andy Grove, coined the motto “Only the Paranoid Survive.” Nicholas, from the beginning, did things his own way. He based the company not in Silicon Valley, where everyone else was, but in Orange County, the sun-drenched suburban sprawl just south of Los Angeles. At a time when dress codes were ostentatiously casual, Nicholas wore three-piece suits—and insisted that others at Broadcom suit up as well. His imperious manner led some Wall Street analysts to call him “Czar Nicholas.” Nicholas told others at Broadcom that he was a rare personality type that some psychologists call “the Mastermind.” (The Myers-Briggs and Keirsey personality tests, which are big in M.B.A. circles, group people into 16 different personality types, to which Keirsey gives labels, such as the Healer and the Inspector; Masterminds make up just 1 percent of the population.) Masterminds are supposed to be calculating perfectionists who have a disregard for authority—as well as for the feelings of others. “Great entrepreneurs generally have a single-minded focus,” says McNamee. “Often they don’t realize there might be another point of view.” At least in the early years of Broadcom, Nicholas’s arrogance was accompanied, maybe even exceeded, by his work ethic. One person who worked with Nicholas says that he slept three or four hours a night, max. “Nick was driven to a fault,” says this person. “But because he works those hours, he can deliver more, faster, better than anyone.” Nicholas liked to tell the press about how his air-force training had taught him to go for 78 hours with only a few hours of sleep—or about how he and Stacey decided to induce the birth of their daughter so he could leave for a presentation to investors when Broadcom was about to go public. For their 10th wedding anniversary, which they celebrated at the Grand Wailea Resort, on Maui, in 2000—three years late—Nicholas invited the executives of a company he was considering acquiring to join them for dinner one night. “The only thing that will make you happy is to set a goal, then kill yourself to achieve it,” he told Fortune in 1999. “I have a theory that the elation you feel is directly proportional to the sacrifices you make.” Nicholas demanded the same level of devotion from those who worked for Broadcom. One investor remembers going to a meeting there around nine a.m. There were only a handful of cars in the parking lot, so he asked if people were traveling. He was told that, no, it was common to have people come in a little later from a short nap because they’d often worked until six or seven in the morning. Nicholas held meetings at three a.m.—actually, he held meetings any hour, any day of the week, at his whim. He liked to invoke a military phrase, R.H.I.P., or “Rank has its privileges.” Nicholas ruled by fear, not love. “He could get really nasty,” says a former employee. “He was like a drill sergeant. He’d get one inch from your face and use his body to the full effect of what a large body can convey.” Once, at a biweekly meeting for executives, this ex-staffer recalls, Nicholas was displeased with the assistant controller’s report. So he rolled up the papers into a thick bar and smacked the guy over the head with it. “You could describe my approach as scorched earth,” Nicholas told a reporter in 2000. “It can be brutal, but my job is to make sure that if we’re going to enter a market, our employees are ready to take on the sacrifices in their lives that’ll be necessary to win.” And Nicholas did his best to look the part of the alpha-male C.E.O. Thanks to an aggressive workout regimen, he bulked up, and he grew the nerdy handlebar mustache out into a goatee just when goatees were becoming hip. At a 1999 press conference announcing a $1-million-plus donation to the University of California at Irvine crew team, he challenged the team captain to a spur-of-the-moment pull-up contest. Nicholas won. He was the geek who became Superman. If there was an element of angry teenage boy—he liked to joke they’d almost named the company Broads.com, and he bragged to reporters about his passion for heavy-metal bands like Metallica and Korn—well, great entrepreneurs were supposed to be eccentric. The balance at Broadcom was to be provided by Samueli, who led the engineering team. Stock analysts called the two men “good Henry and bad Henry,” or “white hat and black hat.” In a 2000 interview, Samueli shrugged off Nicholas’s reputation. “Nick’s gained more confidence to be more brash, no question,” he said. “People accept it. We all accept it.” In truth, no one could control Nicholas. Samueli, say many people who worked with them both, was a non-confrontational personality. One person remembers a time when Nicholas stormed into Samueli’s office, which was right next door to his own. He was angry about some slight offense, real or imagined, and he “ripped him [Samueli] out like he was a five-year-old,” says this person. “It was Satan and the nice guy, and Satan was running the show.” But it all seemed to work, at least for a time. Nicholas was “like a cult leader,” his wife, Stacey, allegedly told one of his personal assistants. Cody Acree, a stock analyst at Stifel Nicolaus, who has covered Broadcom since 2000, says, “At the end of the day, it’s about making money, and if he’s delivering, then it’s hard to question the policy.” Continued (page 3 of 7) Money is certainly part of the reason that Broadcom employees took Nicholas’s brutality. It wasn’t that Broadcom paid high salaries. Quite the opposite: it capped salaries at $110,000, which was less than competitors paid. But the company made up for it with the currency of the age: stock options. At one point in early 2000, Broadcom offered an Intel engineer it wanted to hire an amazing $9 million worth of them, according to a lawsuit Intel filed. That Broadcom was aggressive with stock options wasn’t a secret, but the precise mechanics of the operation certainly were not well understood by outsiders. In many cases, Broadcom made sure its options were worth real money on the day they were granted, alleges the government. They did so by choosing a day in the past at which the stock had closed at a lower price than the grant date. An incident that later became central to the government’s allegations involved the hiring of an engineer named Mehrdad Nayebi in the spring of 1999. Nayebi claimed he was promised a grant of 120,000 options priced at $88.375, which was Broadcom’s stock price when the company was getting serious about making him an offer. But by the time he actually joined the company, his options were instead priced at $95.75. Nayebi e-mailed Nancy Tullos, Broadcom’s vice president of human resources, to complain, saying that the lower price had been a “major key deciding factor” in his decision to accept a job at Broadcom. According to a plea agreement Tullos later entered into with the government, Broadcom’s options committee—which consisted of Henry Nicholas and Henry Samueli—granted Nayebi his options at the lower price. It was Nicholas, the Securities and Exchange Commission would later allege, who was the “final decision-maker and the driving force behind Broadcom’s options backdating.” (Samueli’s defense has maintained that Samueli reasonably relied upon management and other professionals to take care of the proper accounting of options.) This would all be fine if Broadcom had told shareholders what it was doing. Under the tortured rules that governed stock-option accounting at the time, if you granted an option at $10 a share, and the stock was trading at $10 a share, you didn’t have to reflect a compensation charge. But if you chose a date two weeks in the past because the stock was selling for $6 that day, thereby making the option worth $4 the very day the employee got it, you had to reflect $4 of compensation expense in your financial statements. That would decrease the profits you reported, and might result in a lower stock price. If anyone inside Broadcom paused to think about what was happening, they didn’t think, “We’re lying to shareholders.” They thought, “We’re creating the New Economy, and we deserve it,” says a former employee. Not that many paused to think. In August 2000, Broadcom’s stock hit $182.42 a share, valuing the company at more than $60 billion—more than the combined value of Amazon and Yahoo today—and making the two Henrys worth over $10 billion each. The Orange County Register reported that the average Broadcom employee was worth $5.81 million! The parking lot was full of Lamborghinis and Porsches. The Henrys began not only spending money but also giving it away. Samueli donated $30 million to U.C.L.A.’s engineering school and $20 million to U.C. Irvine’s engineering school, both of which were renamed in his honor. Later, Samueli and his wife, Susan, paid $70 million to Disney for the Anaheim Ducks hockey team. Nicholas began donating to political campaigns—he has been one of Arnold Schwarzenegger’s top donors. He bought an aviation company called Prestige Air, which owned three jets and a helicopter. (Prestige Air became part of a lawsuit with the I.R.S., which contended that the Nicholases owed some $4.4 million in back taxes and penalties in part because they improperly wrote off the losses from Prestige Air.) Nicholas also bought toys, among them a Harley-Davidson and a black Lamborghini Diablo. And the Nicholases began to renovate their house. Since the mid-1990s, they’d lived in one of the nicest areas of Laguna Hills, a neighborhood called Nellie Gail Ranch that features 20 miles of equestrian trails, and where a 5,000-square-foot house is considered small. A week after Broadcom’s I.P.O., they bought a much bigger property a few doors down in the same cul-de-sac—called Rodeo Circle—for $1.7 million. They immediately began a remodeling project. The initial budget was $400,000, but the projected bill would balloon to more than $30 million, according to a lawsuit the contractors drafted later—and the project would become the physical manifestation of the dark fantasies in Nicholas’s mind. If You Build It, They Will Come Imagine, if you will, a secret warren of rooms filled with any amenity you could ask for—from top-of-the-line sound equipment to a Jacuzzi—decorated in an extravagant style that could be described as Harem Fantasy Gone Wild. The ceilings are over 12 feet high. One room has a central column covered in 24-karat gold leaf. A series of large buttresses, also covered in gold, radiate from the central column, which in turn is surrounded by seating for 10. Fabulous materials and artifacts cover every square inch: brocade from Spain, lustrous red velvets, arches carved in India, statues of Buddha and Shiva, Persian rugs. One person who worked on the space is almost at a loss for words when asked to describe it. “It was so over the top,” he says. “You have never seen anything like it.” “Nick wanted me to be as creative as possible,” says Russ Butler, the artist and designer who decorated the space. “More and more was better.” He adds: “I wish the whole world could have seen it.” While the average investor in Broadcom never heard a whisper, by as early as 2000 the Wall Street community was rife with rumors about Nicholas. A story began to make the rounds that, during a meeting with a major investor, he had a nosebleed—which was interpreted as a symptom of a cocaine habit. Nicholas’s former assistant at Broadcom, a woman named Beth Kuhns, told the F.B.I. that when she began working for him, in 1998, he was “controlling and detail-oriented,” and required her to work “long and intense hours,” but was otherwise normal. But, she said, he soon began requiring her to withdraw cash from his bank account. He wanted to have at least $10,000 in a locked desk in his office or in a black bag that he carried with him. Once, he gave her an envelope with “thousands of dollars in cash in it and directed her to meet a woman in Broadcom’s offices.” The woman took the envelope and gave Kuhns another, which, in its drug-trafficking indictment, the government says contained “controlled substances.” While the government’s contention that his drug use amounted to a narcotics conspiracy—i.e., distributing drugs—has not been proved, it is hard to deny that Nicholas has used drugs. Maybe his problems were brought on by his desire to operate at a superhuman pace. Maybe, as one person who hung out with him says, “his money came too fast and it opened the door to things he wanted. He was married, he had kids, but he saw something else out there that money could get him. He was kind of a geeky dude. I don’t see him going out with girls in high school, and now here he is with the world at his feet.” Or maybe a woman named Mirjana Dumnjak, who knew Nicholas during this period, puts it best. “You know what they say about borderline geniuses?” she asks. “They’re also borderline crazy.” Whatever it was, Nicholas changed quickly. Within about a year and half of Broadcom’s I.P.O., he went from what one neighbor says was a “super-nice guy who just wanted to make friends” and who had barbecues in his backyard to someone who was “just out there.” Says this person, “I think he’s a victim of bad judgment and bad friends.” Whether his friends were a bad influence or not, it is true that Nicholas started hanging out with some new people at that time. Among them was a charismatic contractor named Roman James, who began the renovation project at the Nicholases’ in the spring of 1998. (James is Dumnjak’s ex-boyfriend.) At the time, James was in his early 30s and almost as tall as Nicholas. He is a good-looking man with dark hair and blue eyes, an easy charm, and a quick wit. He may not have had much money, but Dumnjak and other beautiful women would stop by his various jobs. He’d designed a neighbor’s pool, which Nicholas admired, and he talked his way past the New York and London architecture firms that Nicholas was going to hire. He also began to work on Henry Samueli’s home. Continued (page 4 of 7) Nicholas and James, along with another man, Bill Nutton, who had met James while both were working in Las Vegas, began to hang out together. James gave Nicholas advice on how to be more cool, says one person, who adds that Nicholas had a “boy crush” on James. Dumnjak says that James, in turn, decided he could be Nicholas’s “party adviser,” as she puts it, not merely his contractor. (Of course, Nicholas wasn’t in the habit of taking advice from others. “Once he got out in the world, he approached going out like a hostile takeover,” says a person who spent time with him.) In a declaration taken in a lawsuit filed later, Nutton said that he, Nicholas, and James began riding Nicholas’s Harley-Davidsons together and “partying quite extensively,” both at the jobsite and on frequent excursions. They took Nicholas’s plane to Las Vegas, where Nicholas eventually acquired a condominium on the 32nd floor of Turnberry Place. Nicholas even bought James a car: a red Ferrari. The contractor, says one observer, “was living very high on the hog.” Dumnjak, who says that she accompanied the men to Las Vegas on one occasion, recalls that when Nicholas hired prostitutes he “was like a guy who hasn’t eaten in 10 days and finally saw a steak.… He was kissing them like a high-school guy would kiss his girlfriend.” According to Dumnjak, she once asked him why he behaved this way, given his family and his apparent respect for his wife. (“He was always very complimentary of her,” she says.) “I love my wife, but it’s just something I want to do,” he replied. James and Nutton weren’t the only members of Nicholas’s growing entourage. He hired Craig Gunther, a U.C.L.A.-trained engineer who had a law degree, to manage his personal affairs and money. Within a few years, Gunther and his wife moved into what had been the Nicholases’ first house on Rodeo Circle. In the fall of 1999, Nicholas also hired as his personal assistant a young man named Kenji Kato, who was getting his joint M.B.A. and J.D. from Pepperdine University, in Malibu. Kato helped arrange what he described as “lavish events, dinners, concerts, parties fit for only Billionaires.” As part of a lawsuit he would later file, Kato observed that “it was normal for him [Nicholas] to attempt to have sex with as many women as possible.” It seems that Nicholas eventually became disillusioned with some of the people who wanted to be his friends. In 2004, he told a reporter, “There is a whole cottage industry of parasites who make it their business to be friends of billionaires. The problem is that because they have an agenda, they are often better with you than your real friends, who don’t know how to act with you anymore.” But that was later, and for a short period it was all just a party. To celebrate his 40th birthday, in October 1999, Nicholas paid the band Orgy—an L.A.-based group that described itself as “nu Metal”—$50,000 to play. He had a huge stage built at the Rodeo Circle house. There were gigantic ice sculptures, and the guests included bankers, lawyers, people from the neighborhood, and what one attendee describes as “women by themselves dressed scantily with a lot of makeup.” “It was the most surreal scene ever,” says another attendee. Before the party, according to one pal, Nicholas bragged that nine different women he was dating—none of whom knew about the others—were coming. At one point, he jumped up on the stage, ripped off his shirt—“He’s cut and he knows it,” says another attendee—and sang with the band. He had one request: “My birthday present from you all to me: Please forget this night.” Stacey didn’t appear to relish her new lifestyle. She did have breast implants, say three people who know her. “She was trying to be more of the cool chick,” says Dumnjak. But Stacey, whom everyone describes as unpretentious, refused to drive her new Mercedes, instead sticking with an old forest-green Chrysler minivan. She still shopped at Target, and told one person that she’d trade it all in to be back in the condominium in Redondo Beach and have her husband home the way he used to be. There’s a twist to Nicholas’s story, according to some of the allegations against him, that makes it something darker than a tale of a man whose personal eccentricities got the better of him. The government and former employees allege that he thought he could use drugs and prostitutes to get an advantage in business. As prosecutor Andrew Stolper put it, Nicholas was “not in the business of making a living by dealing drugs. He was in the business of using drugs for his business.” Kenji Kato, who helped organize events for Broadcom, also alleged in his lawsuit that he would see Nicholas put “powdered ecstasy pills into the drinks of his customers. I would see him usually carefully measure the dosage.… I had to look the other way when Nicholas secretly ‘spiked’ clients, prospective clients and third parties’ drinks with illegal drugs.” Mehrdad Nayebi—the engineer who was granted the stock options—contended in a draft lawsuit in late 2000 that Nicholas also “had a practice of hiring prostitutes to ‘greet’ visiting customers, other business associates, and for himself.” Nicholas called the prostitutes “professional saleswomen,” says another person who did business with Broadcom. One former executive recalls getting out of the elevator at Broadcom’s offices and saying to himself, “She’s a pro!” He adds, “I felt like I just walked out of a Las Vegas nightclub. Am I really on the third floor of an office building in Irvine?” Dumnjak says that Nicholas used to tell her that “I can do all this stuff and be productive the next day.” But if Superman could do that once, he soon began to slip. His assistant, Beth Kuhns, told the F.B.I. that he began to “disappear for periods of time and miss important meetings.” She would “receive incoherent calls … where he would speak nonsense” to her. She eventually couldn’t take it anymore and hired a lawyer to arrange her exit from the company. But, Kuhns claimed, when she met with Gunther and Nicholas to negotiate a settlement, their behavior was so erratic that her lawyer called off the meeting. Kuhns and her lawyer instead worked out a settlement with Broadcom, separate from Gunther and Nicholas. In June 2002, Kuhns left Broadcom, which paid her $1 million of shareholders’ money in exchange for her silence, according to prosecutors. As for Mehrdad Nayebi, he was fired (for “incompetence,” according to a Nicholas lawyer), but he too got money: stock options worth over $7 million at the time—again, money that came out of shareholders’ pockets—also with the provision that he keep his allegations quiet. (Broadcom has noted that it routinely includes confidentiality provisions in employment agreements, and has said that the core of each of these settlements had nothing to do with allegations about Nicholas.) Nicholas’s company was also slipping by this time—badly. The dot-com bubble had burst in 2000, and what Nicholas later called the “worst downturn in semiconductor history” was well under way. Broadcom lost money in 2000, 2001, and 2002. Its stock price—as high as $182.42 on August 24, 2000—began to plummet and eventually hit a low of $6.47 on October 7, 2002. One board member later told The Wall Street Journal that “no one was really at the wheel.” But if neither Broadcom’s performance nor Nayebi’s and Kuhns’s accusations jolted the board into action, something else may have. They found out about the lair. It had started innocently enough. Dumnjak claims it was her idea for a tunnel leading down to a series of interconnecting rooms between the house’s library and the gym, where Nicholas was building a 2,000-square-foot sports bar he would call Nick’s Café. In the library, which was decorated in dark custom-carved woods and green granite, a hinged panel opened toward the passageway. The tunnel, says Butler, had a “coolness factor”: the faux stone walls had impressions of skulls carved into niches, which were lit by candelabras. “It was that castle-y look that guys like,” he says. Butler, who still counts Nicholas as a friend, says that in 2000, after a wild party was shut down by neighbors’ complaints, the project was expanded to create a place where Nicholas could carouse in private. Continued (page 5 of 7) Butler agreed to comment for this story because he is upset that his work, which he says was “beautiful,” is being described as a sex lair. But in their lawsuit, the contractors alleged it was exactly that. In August 2000, they said, Nicholas decided, unbeknownst to his wife, to expand the tunnel into a “secret and convenient lair in which he could indulge his appetite for illegal drugs and sex with prostitutes.” Building the lair presented an engineering challenge because the Nicholases’ house is on a hill that cuts sharply down toward the horse trail behind the house. Nicholas grew frustrated with the slow pace of the secret construction, and he took Stacey to Hawaii for a week’s vacation. During that time, hundreds of men worked around the clock. The contractors designed a multitude of entrances and exits, says one person familiar with the construction: a staircase in the sports bar that lifted up, Munsters-like; an entrance covered by rock near the wine cellar; even an exit onto the horse trail, disguised by a faux shed made to resemble other manure-pickup sites on the trail. Not surprisingly, neighbors, who had grown impatient with the construction, began to complain, particularly when they found their access to the horse trail blocked by armed guards. Says one, who thought maybe a helicopter pad was being built, “It was hard to miss that something was going on, but no one knew what.” They called Laguna Hills city officials, who discovered that there was no permit for the construction. The project was promptly shut down. When a Los Angeles Times reporter called Nicholas about the neighbors’ complaints, he explained he was building a pump house to deal with water overflow along the horse trail. “I wanted to make the horse trail around our property the nicest in the whole community,” he told the reporter. When construction was halted, Nicholas, say the contractors, decided to build a backup. He rented space in a warehouse in a gritty industrial district of auto-body shops about a five-minute drive from his house. Inside, he had the contractors build an exact replica of what he wanted under the Rodeo Circle house. Because the space under his house was irregularly shaped, the contractors even built out the rectangular warehouse space to identical irregular specifications, says one person familiar with the work. This was the Ponderosa, or “the Pond,” as it came to be known. According to Butler, who says the décor was inspired in part by his visit to Burma, a visitor would enter through a passageway where the ceilings were tented with fabrics. Jewel-like hanging lamps spotlighted a large brass statue of Ganesh. Then you would step down into a large octagonal room dominated by a central column. The ceiling of that room was a gilt lattice with a star pattern, backlit with sophisticated lighting that could strobe and change color. Butler used mostly red and gold in the decorating scheme because, he says, it was “masculine and very imperial.” There was a flat-screen TV that was one of the largest available at the time, and a bar made from an antique European buffet re-covered in granite. Nicholas came to like the Pond so much that he kept it. And while Butler says it was an innocent spot—he describes it as a “symbiosis between spirituality and technology”—others view it a little differently. The government alleges that Nicholas “hosted numerous parties” at the Pond “during which he supplied controlled substances such as cocaine, ecstasy, and marijuana to his guests.” The contractors called it Nicholas’s “own personal brothel.” There was just one rule for those who came to party at the Pond, says one person: you couldn’t leave before Nicholas did. It was at the Pond that Stacey caught Nicholas, according to the contractors. They said that Nicholas took her to Beaver Creek, Colorado, where the family owned a condominium, for vacation in May 2002. He left early, blaming work, and headed to the Pond. Stacey returned home, too. She’d found out about the Pond—it wouldn’t have been hard for a smart wife to figure out something was up with her husband—and she headed over. There she “caught Nicholas having sex with a prostitute while high on drugs,” said the contractors, in a red-and-gold room with a carved wooden ceiling and a gigantic bed. She filed for divorce. Soon, a furious wife wasn’t Nicholas’s only problem. In the fall of 2002, a group of seven contractors who had worked on the project, including James, hired a lawyer to draft a lawsuit against Nicholas. The contractors contended that Nicholas used “manipulation, lies, intimidation, and even death threats” to stiff them on the bulk of the money they were due. He also allegedly told them he’d have them killed if they ever talked about him or the work they did. The lawsuit wouldn’t become public until years later. Broadcom’s shareholders never knew. But Broadcom’s board did, because the contractors also named Samueli and Broadcom itself in the lawsuit. Perhaps they thought that the pressure those parties would bring to bear on Nicholas increased their chances of getting paid, and it seems it did. James Traut, the lawyer for the contractors, recalls an emergency Sunday-afternoon meeting with lawyers for Nicholas, who had just returned from celebrating his birthday in Spain. Nicholas settled the complaint for roughly $3 million, says one person. Paying the Piper On January 23, 2003, Nicholas announced his resignation to investors on a conference call. “Effective today I have resigned as president and C.E.O. of Broadcom. This has been a difficult personal decision for me, and one that has been driven entirely by personal issues relating to my family separation and divorce.” That was no lie. After all, Nicholas did have serious family issues. But it doesn’t appear to be the whole truth, either. Some members of Broadcom’s board had grown disillusioned with Nicholas due to his performance, and the company started exploring the idea of looking for a new C.E.O. in the fall of 2002. In November, Broadcom appointed a board member, Alan E. “Lanny” Ross, as interim chief operating officer. Within a few weeks of Ross’s arrival, the company laid off 500 people to cut costs. Around the same time, it found out about the contractors’ suit. Nicholas took time off in December and January before finally announcing his departure in late January. Publicly, Nicholas and Stacey talked about reconciling, but in 2006, divorce proceedings began in earnest again. She stayed in the Rodeo Circle house. The lair was demolished. Nicholas moved to a Tuscan-style mansion in a gated community in Newport Coast, just to the north of Laguna. The divorce has clearly been acrimonious, which isn’t surprising, given that the two have to divvy up, among other assets, 32.9 million shares of Broadcom, worth more than $720 million at the time of this writing. The divorce file has been sealed, but according to the Los Angeles Times, it contains “competing allegations of drug abuse and infidelity.” In 2006, Nicholas filed a petition alleging that Stacey had formed a company called Captain Enterprises “to compete directly” with several companies Nicholas owned. These new companies existed to manage Stacey and Nicholas’s personal affairs. Nicholas accused Stacey of hiring his people and requested that she not waste the assets of their joint trust. The petition was eventually dismissed. Nicholas seems to have continued on a downward spiral after leaving Broadcom. Kenji Kato, in his lawsuit against Nicholas, alleged that over the seven years he worked for Nicholas he struggled with Nicholas’s “increasingly abusive and intolerable conduct” as his “sexual cravings and drugs overpowered his life.” He said, “At times, Nick could not remember what he ordered me to do the day before … his thought processes were impeded by his constant drug abuse.” Kato added, “It was very sad to see him like this, the Nick that I first met was much stronger and healthier than the person I ultimately came to work for.” Like some of the other members of Nicholas’s entourage, Kato doesn’t seem to be a saint. He has admitted that he has used drugs, too, although he claims that the “first time I used cocaine was when Nick shoved a tiny spoon up my nose because I was falling asleep while he was talking to me.” After he quit working for Nicholas, in the spring of 2006, his lawyer presented a demand for $9 million, telling Nicholas that, if he did not agree, Kato would go public with his allegations. Nicholas appeared to settle the suit for $3 million but then backed out of the negotiations and filed his own lawsuit against Kato alleging extortion and asking for a restraining order. Kato ended up filing his case anyway, in November 2006. Continued (page 6 of 7) Four other people who worked for Nicholas filed supporting declarations in Kato’s lawsuit, all of which paint a sordid picture of life at the Newport Coast house during 2005 and 2006. Gerald Wada, who worked for Nicholas for four months in 2006, says that he was regularly “ordered to fill up up to 20 balloons of nitrous oxide and deliver them to Dr. Nicholas, or when I was required to clean up after Dr. Nicholas, I frequently found remnants of usage of drugs, such as a straw and plate, residue of cocaine, nitrous oxide balloons, and alcohol.” Todd Murakami, who was Nicholas’s personal assistant and security guard during that same period, says that he would regularly “find bloody Kleenex around the house. We’d have to buy him Saline by the case to rinse his nose out.” But it would be misleading to say that Nicholas has no supporters. Because of Marsalee’s murder, he had thrown himself passionately into the cause of criminal justice, and there is a lot of loyalty to him among the community of people who have lost loved ones to homicide. His biggest battle was in the fall of 2004, when California was about to pass a law known as Proposition 66. It would have limited the state’s “three strikes” rule, by which someone who has been convicted of two violent crimes can be sentenced to life for a third felony. That’s when Nicholas, at his mother’s urging, got to know Steve Ipsen, a veteran prosecutor who was doing his best to thwart Proposition 66. The measure looked like it was going to pass until Nicholas got involved—the weekend before the Tuesday, November 2, vote. “When Nick is into something, he’s into it,” says Ipsen, and indeed, over a frantic weekend, the two men cut a deal to take over the radio airwaves—paid for by some $3 million of Nicholas’s money—and put together two ads. Nicholas even sent his plane to Oakland to get former California governor Jerry Brown to record an ad. The ballot issue, which was supposed to pass by a considerable margin, didn’t. “The truth is: he did it,” says Ipsen about Nicholas. A few years later, on September 25, 2007, Nicholas flew his private jet to Soledad for the parole hearing of Kerry Michael Conley, who was convicted in 1985 of the murder of Marsalee. At least 100 members of victims’ groups also protested Conley’s parole in front of the prison. (The parole was denied, and Conley died last winter in prison.) On the way home, Ipsen introduced Nicholas to a woman named Shari Martin, whose son had been murdered, and who was starting her own chapter of a group for relatives of homicide victims. Nicholas promptly wrote her a check for $10,000. “I didn’t ask,” she says. “He volunteered it.” She sees a very different Henry Nicholas. “The man is a genius, but he comes down to our level,” she says. Among other awards, Nicholas has received the Ronald Reagan Award for Pioneering Achievement in Criminal Justice. There’s a chance that the allegations about the seamier side of Nicholas’s life would have remained gossip behind the Orange Curtain, as some residents call Orange County, masked by his charitable work, his money, and his army of lawyers, had it not been for something about as far removed from sex and drugs as you can imagine: accounting. Part of the ugly aftermath of the dot-com boom has been a massive government investigation into charges that many companies, such as Broadcom, accounted inaccurately for the stock options they doled out. Thus far, nearly 200 companies have disclosed that they engaged in so-called stock-options backdating, in which they granted options at a date in the past without telling shareholders they were doing so. Roughly two dozen executives have been charged with committing fraud. In a high-profile case, Greg Reyes, who was the C.E.O. of a technology company called Brocade Communications, was convicted of fraud last January and sentenced to 21 months in jail. In some quarters, particularly in Silicon Valley, there is the attitude that the government is trying to criminalize accounting sloppiness, and that, anyway, entrepreneurs like Nicholas create such value that they should be given a pass. “It’s like after the gold rush in America, trying to enforce trespassing laws,” says Ipsen. “Imagine what America could be like if Broadcom, Apple, and the other 250 companies now accused of backdating options didn’t exist? Where would we be?” There are others who argue, however, that there is a simple word for taking something from shareholders without telling them you’re taking it: theft. And if it’s theft, then by one measure, there is no company in America whose executives allegedly stole on as grand a scale as Broadcom did. In June 2006, Broadcom announced that it had received an informal inquiry into its stock-option practices from the Securities and Exchange Commission. At the end of that year, the company announced the results of its internal investigation. It conceded that “certain executives and employees selected numerous grant dates after the fact.” Then, on January 23, 2007—four years after Nicholas’s departure—Broadcom announced that it would take total charges of $2.2 billion in order to account for the cost of the options. That is the largest charge taken by any U.S. company that has been caught up in the options scandal. Broadcom laid the blame on Bill Ruehle, who had resigned as C.F.O. that fall due to the stock-option review; former human-resources vice president Nancy Tullos; and Nicholas, who, the company said, “bears significant responsibility for the lack of adequate controls in the option granting process due to the tone and style of doing business he set.” It’s hard to see how what happened at Broadcom could be chalked up to mere sloppiness, argues the government. In 2000, for instance, the government says that Ruehle and Nicholas were informed by Broadcom’s accountants that they might have to take a big stock-option-related charge. Ruehle told Nicholas, “Obviously, we are not about to let this happen.” And you can see why: if Broadcom had properly reflected the costs, according to the S.E.C. complaint, its 2000 operating income would have been reduced by $442 million. It’s true that Nicholas himself was Broadcom’s largest shareholder, so the practice hurt him too. But it’s also true that he sold more than $1 billion of his Broadcom stock during this period. It was inevitable that prosecutors would start poking around Nicholas’s personal life, given the ample rumors. By the spring of 2007, Nicholas knew that investigators were asking questions. That’s when, on a trip to Oakland on one of his private jets, he took personal adviser Craig Gunther to the back of the plane and, according to prosecutors, accused him of wearing a wire and working with the feds. Gunther told the F.B.I. that Nicholas had said he would “chase him to the ends of the earth” if he “screwed him”—and then struck him in the face. (Nicholas’s lawyers contest this. Although they acknowledge there was an “incident,” they say they don’t accept that “there was [sic] threats made.”) Gunther, it seems, wasn’t cooperating. In fact, that August, prosecutors charged him with a somewhat obscure crime: avoiding currency-reporting regulations that require a bank to file a report when more than $10,000 is withdrawn from an account—in this case, by repeatedly cashing checks to Nicholas’s account for just under the limit. That is, says the government, “consistent with someone purchasing substantial quantities of narcotics.” Indeed, from early 2006 to early 2007, one employee wrote 129 checks on Nicholas’s account, payable to cash, for a cumulative $689,685.42. Only a few were for over $10,000. Almost all were signed by Gunther. Many were cashed only minutes apart. It was a sign of Nicholas’s belief in his own invincibility or perhaps of his addiction that he apparently continued using drugs even after he knew he was under investigation. A video surreptitiously taken of him in Las Vegas on July 24, 2007, shows him looking disheveled in slacks and a button-down shirt open to mid-chest. He appears to be snorting cocaine at a desk in an ornate bedroom with carved-wood mirrors and a carved-wood headboard. At one point, a slender woman wearing a sports bra walks in. (Nicholas’s lawyers have said that the video represents “one incident of recreational drug abuse.”) Continued (page 7 of 7) Prosecutors got wind of another suspicious incident that occurred in the fall of 2007. On November 24, Nicholas, driving his Lamborghini along Newport Coast Drive with his son in the car, crashed into a light pole with such force that he sheared it at the base. Nicholas left the scene, and his bodyguard—a former navy seal named Stephen “Otter” Otten, who had won a Bronze Star for his duty in Fallujah and Baghdad—told the police that he had been driving. He later expensed his ticket to Nicholas. The truth might not have come out but for an anonymous tipster who, saying he had worked for Nicholas, called the police. Nicholas, he said, “was a very powerful man,” and he feared retribution. Today, when you drive through Broadcom’s parking lot in the late morning, it’s filled with employees’ cars, and the cars are staid and serious. Revenues have more than tripled since Nicholas’s departure, and the company now has over 4,000 patents—more than 15 times the number it had when Nicholas left. Under its new C.E.O., Scott McGregor, the company has made a big bet that it will be able to crack the cell-phone market, which could once again make Broadcom a hot, high-growth company, says analyst Cody Acree. But its success is far from assured, and at this point Nicholas’s legacy is not helping. Nancy Tullos has pleaded guilty in the stock-option case and is cooperating with prosecutors. The company paid $12 million to settle S.E.C. charges that it falsified its books, and has had to set up a special litigation committee to deal with all of the shareholder lawsuits coming its way. Henry Samueli pleaded guilty to one count of lying to the S.E.C. He told the commission that he had no role in granting stock options, which was not true. He agreed to pay a $12 million fine and struck a deal with prosecutors for five years of probation, but the judge overseeing his and Nicholas’s case rejected the deal. “The $12 million payment,” wrote the judge, “suggests that Dr. Samueli’s wealth and popularity will allow him to avoid the consequences of his alleged misconduct at Broadcom. The court cannot accept a plea agreement that gives the impression that justice is for sale.” It is unclear what will happen next. Samueli has had to step down as Broadcom’s chairman and take a leave from the board, has been indefinitely suspended from the National Hockey League as the owner of the Anaheim Ducks, and is facing the removal of his name from the U.C.L.A. and U.C. Irvine schools of engineering. As for Nicholas, he is out of Cliffside Malibu and living in another Tuscan-style Newport Coast mansion, which he bought from Marie and Robert Gray, the founders of St. John Knits, for $19.5 million. His travel is restricted to the central district of California. He has burned through lawyers but, in this case, he seems to have settled on his own Perry Mason: Brendan Sullivan, the Williams & Connolly lawyer who defended Lieutenant Colonel Oliver North in the Iran-contra case, among other high-profile clients. Sullivan claims that the questions presented to him for comment were “rife with inaccuracies” and that “Dr. Nicholas intends to defend himself in court, however, not in the pages of Vanity Fair.” All signs say that Henry Nicholas will go to trial. If he’s found guilty of all the charges, he could spend many years in jail. You could argue that it was all necessary, that if Nicholas wasn’t such an extremist he also wouldn’t have built such a successful company. Or maybe not. Says one former executive, “Could he have done what he did without the insanity? I think he could have. He had a wife and kids and a wonderful company, and he let a piece of him take over.” A few years ago, Nicholas, in a moment of self-reflection, said, “All I’ve done is make money. I’ve achieved none of my goals.” Now there’s a chance he never will. Maybe the cartoon characters Calvin and Hobbes sum it up best: “Do you believe in the Devil?” Calvin asks. “You know, a supreme evil being dedicated to the temptation, corruption, and destruction of man?”
Title: Henry T. Nicholas net worth 2012
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Rating: 100% based on 99998 ratings. 5 user reviews.
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