Siegel also cautioned “that Irell can handle issues related to the proper accounting for option grants but that if an issue of self-dealing or management or Board integrity arose, a special committee of independent directors would need to be appointed and special independent counsel engaged to conduct that inquiry.” The Audit Committee and other representatives of Broadcom made clear that the intent was to turn over the information obtained through the Equity Review to the auditors, to fully cooperate with government regulators, and, if necessary, to self-report any problems with Broadcom's financial statements.
As many within Broadcom had anticipated, civil lawsuits soon followed the media reports about the company's back-dating of stock options.
The court found that at the initial stages of the inquiry by Irell (called the “Equity Review”) an attorney-client relationship also existed with the CFO individually, and not just with Broadcom, and that the lawyers breached their ethical duties to their client Ruehle in disclosing what he had told them in a preliminary interview. As a result of the media attention and in anticipation of an inquiry from the Securities and Exchange Commission (“SEC”), Broadcom's Board of Directors and company management decided to bring in outside counsel to commence an internal review of the company's current and past stock option granting practices.
The district court held an evidentiary hearing and, after evaluating the extensive briefing and evidence presented, issued an order suppressing all evidence reflecting Ruehle's statements to attorneys from Irell & Manella LLP (“Irell”), Broadcom's outside counsel, regarding the stock option granting practices at Broadcom. Shortly thereafter, in mid-May 2006, an investor rights group publicly identified Broadcom as one of the corporations that appeared to have engaged in backdating.
The information they provided was summarized in FBI Form FD-302 reports of investigation, which are part of the sealed record.