2 former execs of Vitesse Semiconductor are indicted
Two former executives at Vitesse Semiconductor Corp. were indicted Friday by a federal grand jury on charges of defrauding investors in the Camarillo technology firm by overstating its revenue and manipulating stock options to secretly reward employees.
Vitesse founder and former Chief Executive Louis Tomasetta and former Executive Vice President Eugene Hovanec were released on bond after pleading not guilty in federal court in New York.
They are charged with securities fraud, falsifying corporate records and conspiracy. Tomasetta also is charged with falsely certifying a financial report and lying to auditors.
The indictment followed guilty pleas in recent weeks by two other former Vitesse executives to similar charges under agreements to cooperate with the government, prosecutors said.
Yatin D. Mody, 47, of Westlake Village, who was chief financial officer, pleaded guilty last week, according to the government. Vitesse’s former director of accounting, Nicole Kaplan, 39, of Agoura Hills, pleaded guilty late last month.
The charges against Tomasetta, 62, of Ojai and Hovanec, 60, of Westlake Village came after more than four years of investigation.
Vitesse suspended them in April 2006 and fired them a month later. Vitesse’s stock price fell 28% after they were put on leave, prosecutors said.
The alleged misconduct at Vitesse marked one of the earliest in a rash of cases alleging that executives at many companies backdated options to buy stock to days when the shares had traded at a low point — making the options more valuable to the employees who received them — without disclosing that favor to other shareholders or recording an expense to reflect it.
Federal prosecutors have had mixed success in the cases, suffering a notable defeat this year when a Santa Ana judge threw out backdating charges against the founders of Irvine’s Broadcom Corp., citing prosecutorial misconduct.
After appearing late Friday in Manhattan federal court, Tomasetta and Hovanec were each released on $1-million bond. U.S. Magistrate Judge Michael H. Dolinger ordered them to surrender their passports and not leave the country.
Defense attorneys said the charges wouldn’t hold up in court.
“The accusations are untrue,” Tomasetta’s lawyer, Dan E. Marmalefsky of Los Angeles, said in a statement. “Dr. Tomasetta did not participate in any scheme, did not commit securities fraud, falsify books and records or lie to auditors. We intend to contest these charges vigorously.”
Gary Lincenberg of Los Angeles, Hovanec’s lawyer, said in an interview that he and his client “look forward to addressing these issues in a courtroom.”
Tomasetta and Hovanec are accused of improperly backdating numerous stock options granted to Vitesse employees from 2001 through 2004.
The pair “chose an exercise price for the options that was less than the fair market value of the stock on the date that Vitesse’s Compensation Committee granted the options,” the prosecutors said in a statement. “They then falsified public filings with the SEC.”
Prosecutors also said the defendants “well knew” that Vitesse fraudulently recognized revenue on shipments of products to a distributor because the company had an undisclosed agreement letting the distributor return large portions of the merchandise.
Vitesse did not make adequate provision in its books and records to account for those returns, and it misstated its books from 2001 through early 2006 by not accurately reflecting the transactions and the stock option backdating, the prosecutors said.
In October 2007, Vitesse agreed to pay $8.75 million to settle shareholder lawsuits over backdating of employee stock options.
Several of the charges carry potential sentences of 20 years in prison and millions of dollars in fines.