Stock option backdating cases live on. The Securities and Exchange Commission today simultaneously filed and settled civil fraud charges against California-based integrated circuit maker Vitesse Semiconductor Corp. and four former senior executives for inflating revenue and backdating stock options.
According to the SEC, from September 2001 through April 2006, the defendants “engaged in an elaborate channel stuffing scheme in order to improperly record revenue on product shipments.” As a result, Vitesse inflated the revenue it reported in its financial statements for 14 quarters, the SEC alleged in a complaint filed in U.S. District Court for the Southern District of New York.
The defendants also “engaged in a scheme to backdate stock option grant dates for their personal benefit and the benefit of other Vitesse executives and employees,” the SEC alleged. As a result of the backdating, Vitesse failed to record approximately $184 million in compensation expenses and the defendants "collectively reaped millions of dollars in illicit profits."
The defendants are co-founder and former Chief Executive Officer Louis Tomasetta, former Chief Financial Officer and Executive Vice President Eugene Hovanec, former Controller and Chief Financial Officer Yatin Mody, and former Manager and Director of Finance Nicole Kaplan.
Vitesse settled the matter by agreeing to pay a $3 million civil penalty. Mody and Kaplan have each agreed to a bifurcated settlement that provides they will be permanently enjoined and ordered to pay disgorgement, and that any civil penalty will be determined later by the district court.
Mody has also agreed to be permanently barred from serving as an officer or director of a public company. The SEC's case against Tomasetta and Hovanec is contested.
Separately, the U.S. Attorney's Office for the Southern District of New York today filed criminal charges against Tomasetta and Hovanec, and announced that Mody and Kaplan have pleaded guilty to criminal charges.
In 2007, the company and executives settled a class action over backdating allegations for $10.2 million, plus about 3 million shares of stock.