Vitesse Finds Evidence of Stock Option Backdating
By Suzanne Deffree -- EDN, December 20, 2006
A special committee at Vitesse Semiconductor Corp. has found evidence that members of its former senior management team backdated and manipulated the grant dates of stock options issued over a number of years, utilized improper accounting practices related to revenue recognition and inventory, and prepared or altered financial records to conceal those practices.
Without releasing names of the former executives or specifics on when these events occurred, Vitesse said it is unlikely that the company will be able to prepare and publish audited restated financial statements for its fiscal years ended Sept. 30, 2004 and 2005. The company does believe, however, that it will be able to provide audited financial statements for its fiscal year ended Sept. 30, 2006 and thereafter, although Vitesse did not give a timetable regarding the publication of those financial statements.
With the exception of Louis R. Tomasetta, Vitesse’s former CEO who was fired in May, the committee did not find evidence that any current member of the board, the company’s compensation committee or current senior management was aware of improper practices with respect to stock options. The committee did identify a single option grant to members of the board in 1996, which Vitesse said appeared to be inadvertent, that had the effect of increasing the profit to some members of the board upon exercise by approximately $18,000 each. That increased profit will be returned to Vitesse.
The company is estimating that the total additional expense resulting from this backdating and manipulation of stock options is approximately $120 million since 1995, which includes approximately $20 million to $25 million for fiscal years 2002 through 2006.
Vitesse is not alone in finding evidence of backdating. Indeed, Broadcom Corp. reported this week that it found evidence of stock option backdating.
Other issues the committee came across during its investigation include but are not limited to: the failure to record credits for merchandise returns and other customer credits in the appropriate accounting periods, and to write-off related accounts receivable; recording false sales invoices that increased revenue; the misapplication of cash received from customers and from purported sales of accounts receivable to older accounts receivable balances, which already should have been written off; and the improper accounting for certain transactions as sales of accounts receivable rather than borrowings.
The committee consisted of Edward Rogas, Jr., who became a board director in January, and Moshe Gavrielov, who became a director in April 2005. The committee was assisted by Munger, Tolls & Olson LLP, independent outside legal counsel, and Navigant Consulting, Inc., forensic accountants.
Also see:
Vitesse Rejects Request for Early Debt Payment
SEC, U.S. Attorney Turn Up Heat on Vitesse
