May 14 (Bloomberg) -- Broadcom Corp.'s chairman and former chief executive officer were sued by the Securities and Exchange Commission, which claimed they orchestrated a scheme to backdate stock options and understated the company's expenses by $2.2 billion.

The SEC sued Broadcom co-founders Henry Samueli, 53, the company's chairman and chief technology officer, and Henry Nicholas, who stepped down as CEO in 2003, the agency said today in a statement. William Ruehle, former chief financial officer, and David Dull, general counsel, were also named in the SEC's complaint. The suit prompted Samueli to step down as chairman.

Through backdating, companies retroactively change grant dates of options to increase recipients' profits. Broadcom's $2.22 billion restatement in January 2007, the biggest of any company ensnared in a federal backdating probe, reflected compensation costs hidden by the practice, the SEC said.

The executives ``perpetrated a massive, five-year scheme that involved fraudulent backdating of dozens of option grants, falsifying corporate records, intentionally false accounting and lying to shareholders,'' SEC Enforcement Director Linda Thomsen said in the statement released in Washington. The backdating ran from 1998 to 2003, the SEC said.

Broadcom agreed last month to pay $12 million to settle an SEC probe of the company. The Irvine, California-based maker of chips for mobile-phone manufacturers such as Nokia Oyj fell 51 cents, or 1.9 percent, to $26.96 today in Nasdaq Stock Market composite trading.

New Chairman

In addition to resigning from the board, Samueli will take a leave of absence as an executive officer until the complaint is resolved. John E. Major, an independent director since 2003, will replace Samueli as chairman.

Dull also took a leave of absence. Both he and Samueli will remain non-officer employees of Broadcom, the company said.

A team of lawyers and accountants hired by Broadcom's board in 2006 issued a report that ``fully exonerated'' Samueli, Gordon Greenberg, his attorney, said today in an e-mailed statement.

``The SEC disregarded our written request to refrain from trying their case in the media,'' said Greenberg, a lawyer at McDermott, Will & Emery in Los Angeles. ``We look forward to representing Dr. Samueli in the proper forum, the courtroom.''

Ruehle denies the SEC's allegations, said his attorney Richard Marmaro of Skadden, Arps, Slate, Meagher & Flom LLP in Los Angeles. Marmaro added that the ``noncash compensation charges at the heart of the SEC's allegations were not material to investors or analysts.''

`Personally Benefited'

The SEC complaint said Ruehle, 65, and Dull ``personally benefited'' from the backdating. Ruehle made $102,967 by exercising backdated options and Dull reaped $1.86 million, the agency said.

The SEC settlement with Broadcom precludes Dull, 59, from ``denying'' the agency's allegations because he still works at the company, said his attorney, Seth Aronson of O'Melveny & Myers LLP in Los Angeles. Dull will respond at the ``appropriate time,'' Aronson said.

Attorneys representing Nicholas, 48, didn't return phone calls seeking comment and Broadcom spokeswoman Julie Weber had no immediate comment.

Worker Recruitment

Broadcom ``operated in the highly competitive high-tech market,'' which made recruiting and retaining employees a ``top priority,'' the SEC said. At the same time, the company tried to cap individual cash salaries at $110,000, so it relied ``heavily'' on stock options as a compensation tool.

Samueli and Nicholas served on a two-member committee that granted options to all but the most senior employees. Broadcom made as many as 88 awards from 1998 to 2003. For many of the grants, the committee didn't hold meetings or make decisions on the dates the awards were ``supposedly approved,'' the SEC said.

The agency accused Dull of preparing, reviewing and approving false documents for board meetings that concealed two instances of backdating, one of which gave him the right to buy 300,000 shares.

The SEC wants Ruehle and Dull to return their ill-gotten gains. It also seeks financial penalties against all four executives and would bar them from serving as officers or directors of a public company.

At least 225 companies have disclosed internal or federal probes involving options irregularities, and more than 140 said they will restate their financial results.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: May 14, 2008 21:19 EDT