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. BETHANY MCLEAN 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
On 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."
" Do you feel sorry for the shark at the end of Jaws ?" asks a person who knows Nicholas, in the wake of his indictment on felony drug and fraud charges.
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 facade 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 …