3 Vitesse Executives Suspended in Inquiry
Chip maker Vitesse Semiconductor Corp. said Tuesday that three top executives, including co-founder Louis R. Tomasetta, had been put on administrative leave while the company investigated potentially irregular stock option transactions.
Shares of the Camarillo-based designer of chips for communications and storage networks plunged nearly 25% after the company’s board appointed a special committee to examine the granting, timing and accounting of certain options.
The committee will be assisted by outside attorneys.
Vitesse declined to provide details of the investigation but said in a statement that it might restate its financial results “for prior periods.”
In addition to Tomasetta, who has served as president and chief executive since founding Vitesse in 1987, the company suspended Chief Financial Officer Yatin Mody and Executive Vice President Eugene F. Hovanec, who was previously the company’s CFO.
“It’s a bit of a surprise. I’ve never had this happen with any of the companies I cover,” said Arnab Chanda, an analyst who follows Vitesse for Lehman Bros. “With the CEO, the current CFO and previous CFO, it is certainly serious. The stock’s going to get hurt ... no question about that.”
Nasdaq halted trading in Vitesse shares before the market opened Tuesday.
On Monday the stock fell 16 cents to $3.11. Following Tuesday’s disclosure, the shares slid 79 cents to $2.32 in after-hours trading.
Vitesse went public in 1991, and its stock hit an all-time high of $106.13 in March 2000.
The Securities and Exchange Commission in recent weeks has been examining the possible backdating of option grants. Such a practice would allow companies to set the strike price of stock options issued to an executive at a low point in the company’s trading range. That would allow for bigger payouts when the stock rises.
On Monday, Comverse Technology Inc. said it would restate results back to 2001 following questions over whether stock-option grant dates were inaccurately recorded.
The SEC and the Justice Department opened a probe into Brocade Communications Inc. last year after the maker of data switches restated several years of results to account for misreported options.
In its first fiscal quarter ended Dec. 31, Vitesse lost $14.1 million, or 6 cents a share, narrowing its loss from the year-earlier quarter of $17.2 million, or 8 cents. Revenue for the quarter was $53 million, up from $44.5 million the previous year.
Chanda said he was unaware of any irregularities at Vitesse.
Nonetheless, suspending top officers is “the right thing to do if you want to do an internal investigation,” he said. “I think it’s probably to give an impression to Wall Street and the SEC that it’s something they’re taking very seriously.”
Representatives of Vitesse did not return calls seeking comment.
The board appointed Chris Gardner acting president and chief executive, according to the company’s statement.
Gardner had been vice president and general manager of the company’s network products division since 2002.
Bloomberg News was used in compiling this report.
