Chip Maker Fires 3 Top Executives
A Camarillo semiconductor maker fired three of its top executives Wednesday amid a continuing internal investigation of its accounting and stock option grant practices.
Vitesse Semiconductor Corp. announced the termination of Chief Executive Louis R. Tomasetta, Chief Financial Officer Yatin Mody and Executive Vice President Eugene F. Hovanec.
The three executives were put on administrative leave last month after the company launched the probe. Christopher R. Gardner, who has been serving as the company’s acting chief executive, was officially given the post Wednesday.
The company declined to comment beyond a statement that announced the moves and disclosed that Vitesse is now in violation of a bank agreement.
“We have taken quick and decisive action that we believe is in the best interests of the company and its shareholders,” said Vice Chairman John. C. Lewis.
The dismissals come after the Securities and Exchange Commission launched an investigation into irregularities in the stock-grant practices of about a dozen undisclosed companies. The SEC is looking into whether some may have altered the dates on stock options to allow executives to increase their profits, the Wall Street Journal reported earlier this year, citing potential problems at Vitesse, healthcare giant UnitedHealth Group Inc. and microchip maker Altera.
The agency would not comment Wednesday. Vitesse shares plunged 20%, or 37 cents, to $1.48.
In early May, Comverse Technology Inc. forced the resignations of three top executives a day before the SEC issued subpoenas in a stock option probe.
UnitedHealth said Wednesday that it had received subpoenas from federal authorities probing its stock option grants.
For its part, Vitesse’s board formed a special committee of independent directors in April to look into such practices. The following week, the company reported that it would need to restate financial statements from September 2002 through the end of 2005 because of problems related to Vitesse’s accounts receivable and revenue.
The company recently expanded its inquiry to include how it recognizes revenue. In its statement Wednesday, Vitesse said it was in default on its credit line with Silicon Valley Bank, and has agreed to pay half of a $10-million balance. It also said it has hired an investment banking firm, which it did not identify, to obtain additional financing.
Stock options are granted to executives as an incentive to improve a company’s performance. Executives can exercise their options at a set “strike” price, which typically equals the market price on the day the options are granted. Some strike dates have coincided with a company’s rock-bottom stock price, raising suspicions among their boards of directors that the options may have been backdated to provide executives with greater gains.
Although the practice of backdating may not be wholly illegal, some finance experts see it as a bad business practice.
Backdating stock options is “financial fraud,” said Nell Minow, editor at Corporate Library, a Portland, Maine-based firm that tracks pay and corporate governance. “The whole point of a stock option is that you are operating on the same basis as the investor.”
Better oversight of contracts and accounting practices by corporations could have prevented many of these problems, said Terry Warfield, associate professor of accounting at the University of Wisconsin-Madison.
Shareholders have filed a class-action lawsuit against Vitesse, charging that the company misled shareholders, causing Vitesse’s shares to trade at artificially inflated prices.
