School names under review
By Julia Erlandson
July 20, 2008 9:38 p.m.
UC officials are reviewing the names of UCLA and UC Irvine’s engineering schools in the wake of Henry Samueli’s recent conviction of lying to federal investigators, officials said recently.
Samueli, the founder of Broadcom Corporation and philanthropist after whom both engineering schools are named, admitted to lying to Securities and Exchange Commission officials who were investigating stock-option backdating at Broadcom.
Samueli told investigators he was not involved in the company’s option-granting process, but he later admitted that was not true.
The Los Angeles Times recently reported that the University of California has launched a review of the two engineering schools’ names and could choose to strip Samueli’s name from both.
University policy requires that buildings’ names uphold the UC’s status as “a public trust,” and if a name does become problematic, the university’s general counsel must confer with the attorney general of California.
Neither UCLA nor the UC have released any information suggesting that Samueli’s name may be removed, and the UC Office of the President is still reviewing the matter, according to UCLA representatives.
UCLA Chancellor Gene Block was quick to express sympathy for Samueli, who donated $30 million and which led UCLA to put his name on the School of Engineering and Applied Science.
“Henry Samueli has been a friend of UCLA and a valued member of the Bruin family for many years, generously offering his time and philanthropy to multiple endeavors that have enriched the university community,” Block said in a statement released soon after Samueli’s conviction. “I am saddened by the legal issues he now faces and hope they are resolved quickly and fairly.”
In addition to being a prominent donor, Samueli is also an alumnus of UCLA engineering and has served on the electrical engineering faculty according to Block’s statement.
He founded Broadcom, which makes computer chips used in the Apple iPhone and Nintendo Wii, in 1991.
But in the wake of the dot-com bust, Broadcom became embroiled in the stock-option backdating scandal.
Stock options are the ability to purchase stock in the future at a fixed price. If the stock price goes up, option holders profit because they are able to buy stock at below-market value.
Backdating stock options means altering the date on which they were issued so that they have value the moment they are granted.
Iman Anabtawi, a UCLA law professor who has published on stock-option backdating, pointed out that backdating itself is not illegal, though most companies do have internal policies against it. Where high-tech executives got in trouble was in failing to report the backdating.
Because they did not report the backdating that occurred, executives failed to report their actual incomes and profits to the government, Anabtawi said.
“What is not legal is evading the tax and accounting structures,” she said.
Anabtawi also said it remains unclear whether executives always knew they were breaking the law by backdating options the way they did. Companies see backdated options as an effective way to attract and compensate talented employees, she said.
In some cases, though, executives granted themselves backdated options for their own personal gain, and Anabtawi said the fact that Samueli did not himself receive any backdated options sets his case apart.
“I would say there are more egregious examples of backdating,” she said, though she noted that lying to federal investigators is still a serious offense.
Stephen Bainbridge, a UCLA law professor who specializes in corporate law, said Samueli’s conviction may also be indicative of a larger trend among federal investigators.
“(There is an) increasing tendency of federal investigators not to prosecute the underlying crime, but obstruction of justice or lying to federal investigators,” he said.
The Securities and Exchange Commission could have tried to prosecute Samueli for fraud, because failing to report backdating essentially amounts to deceiving shareholders. But that allegation would likely have been much more difficult to prove, Bainbridge said.
“You have to prove that the person committed fraud with the intention of misleading others. That mental state can be hard to prove,” he said.
Showing that an executive lied to investigators can be a much easier way to convict them, Bainbridge noted.
Both Bainbridge and Anabtawi said the increasing frequency of these types of investigations could have a lasting effect on the business world.
“The SEC’s zeal in pursuing these offenses has rocked the business community and the legal community as well,” Anabtawi said.
“The SEC has used backdating to send a signal to the corporate community that it won’t tolerate gaming of finances and disclosure.”
