Vitesse Semiconductor Corp. (Nasdaq: VTSS) has suspended three executives as the company launches an investigation into certain stock option grants.

Vitesse announced the investigation this afternoon, not waiting for the market to close. The stock reacted predictably, falling 81 cents (26%) to $2.30 late in the day.

CEO Louis Tomasetta and CFO Yatin Mody have been put on leave, as has executive vice president Eugene F. Hovanec. Chris Gardner, Vitesse's chief operating officer, has been named interim CEO.

The announcement says a committee of the company's independent directors is conducting "an internal investigation relating to past stock option grants, the timing of such grants and related accounting and documentation." (See Vitesse Investigates Options.)

Vitesse also noted that financial restatements could be in its future, depending on what the investigation uncovers.

Like many technology companies, Vitesse rewards executives with stock options. Tomasetta's 2005 compensation included a $388,076 salary and options totaling 1.8 million shares, according to the company's shareholder proxy. Hovanec received $246,154 plus 450,000 shares' worth of options in 2005, while Mody received $196,923 and options for 400,000 shares.

Vitesse continues to patch itself up after tumbling in the telecom downturn. For its first quarter, which ended in December, Vitesse reported losses of $14.1 million on revenues of $53 million; the company also laid off 70 during that quarter. (See Vitesse Reports Q1.)

— Craig Matsumoto, Senior Editor, Light Reading