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Vitesse Brass Placed on Leave

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

Pete Baldwin 12/5/2012 | 3:56:58 AM
re: Vitesse Brass Placed on Leave What time period does the investigation cover - anybody know? One guess would be that it's recent stuff, like 2004-5, and that the problems have to do with accounting esoterica and the new rules, rather than malfeasance. But ... then why would you suspend people? Hm.
paolo.franzoi 12/5/2012 | 3:56:57 AM
re: Vitesse Brass Placed on Leave
First off, nobody knows for sure unless they are on the board and willing to post. The one thing you can investigate is past public filings about option grants. Even then, the program is board approved.

The reason you would suspend people is that this is a first move to firing them. However instead of outright firing and facing the inevitable lawsuit, you suspend them, investigate and negotiate. When the negotiations are complete, they will be exited.

Now, why announce this before the negotiation are complete? SOX. At the end of the day, the BoD could be held liable here (no matter what they might publish). Executive Compensation (unless these gents were providing extra options for their friends) are a BoD reviewed and approved. This would start in the Compensation Committee and then flow to the full BoD. By immediate action, the BoD wants to show that it is a no nonsence bunch that the SEC should not investigate. Then, they cross their fingers.

seven
paolo.franzoi 12/5/2012 | 3:56:57 AM
re: Vitesse Brass Placed on Leave
First off, nobody knows for sure unless they are on the board and willing to post. The one thing you can investigate is past public filings about option grants. Even then, the program is board approved.

The reason you would suspend people is that this is a first move to firing them. However instead of outright firing and facing the inevitable lawsuit, you suspend them, investigate and negotiate. When the negotiations are complete, they will be exited.

Now, why announce this before the negotiation are complete? SOX. At the end of the day, the BoD could be held liable here (no matter what they might publish). Executive Compensation (unless these gents were providing extra options for their friends) are a BoD reviewed and approved. This would start in the Compensation Committee and then flow to the full BoD. By immediate action, the BoD wants to show that it is a no nonsence bunch that the SEC should not investigate. Then, they cross their fingers.

seven
Stevery 12/5/2012 | 3:56:56 AM
re: Vitesse Brass Placed on Leave One guess would be that it's recent stuff, like 2004-5, and that the problems have to do with accounting esoterica and the new rules, rather than malfeasance. But ... then why would you suspend people?

I would guess that it is NOT in fact esoterica. Esoterica would have been dealt with in a much more oblique manner.

I would guess that it is due to malfeasance, especially because they were not given the option of resigning "to pursue other interests (blah blah blah)."

The real question is: what did they do?
And the other (gossipy) question is: How did they get caught?
twill009 12/5/2012 | 3:56:56 AM
re: Vitesse Brass Placed on Leave All of this goes back to a March 18, 2006 article in the Wall Street Journal ("The Perfect Payday -
Some CEOs reap millions by landing stock options when they are most valuable. Luck -- or something else?" By CHARLES FORELLE and JAMES BANDLER) that discussed the post dating of option grants.

According to the article, "In eight of Mr. Tomasetta's nine option grants from 1994 to 2001, the grants were dated just before double-digit price surges in the next 20 trading days. The odds of such a pattern occurring by chance are about one in 26 billion."

The board is no doubt reacting to this article, and there is probably little doubt that the SEC will look into it as well.

You have to give credit to the WSJ on this one -- investigative journalism at its finest. While I'm on the subject, one reason I read LR is that it takes chances and uncovers unique news. Always worth watching.
chips_ahoy 12/5/2012 | 3:56:55 AM
re: Vitesse Brass Placed on Leave if this is an internal investigation, why did they announce like this? halting a day of trading does not seem like the ideal way to set glide path towards a smooth landing.... more like that put your head in between your knees maneuver.

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