Jan. 30 (Bloomberg) -- Microsemi Corp. will retain Chief Executive Officer James Peterson after a board investigation found that he made up degrees from Brigham Young University.

Peterson said in a Dec. 3 statement that he “categorically” denied misrepresenting his degrees, after Bloomberg News reported that the university had no record of diplomas listed for him in government filings. The shares have fallen 54 percent since the report.

Peterson, 53, will pay $100,000 to the company and forgo a bonus for the current fiscal year, Microsemi said yesterday. During the past three years, his annual bonuses averaged about $680,000, the company said. Microsemi, based in Irvine, California, will also delay the vesting of Peterson’s stock grants by one year.

“It’s a minor hand slap,” said Patrick Wang, an analyst at Wedbush Morgan Securities in Los Angeles. “A lot of investors out there were hoping that Jim Peterson would leave the company.”

A regulatory filing for STEC Inc., a company where Peterson serves as a director, said he had bachelor’s and master’s degrees in business administration from Brigham Young.

Microsemi Chairman Dennis Leibel said the board decided to retain Peterson because of his record building a profitable company. Microsemi said it will vet the credentials of new employees and require press releases to be verified before they are issued.

“The board’s mission is to protect shareholder interests by balancing the results of the independent inquiry against the great value and strategic vision that Jim Peterson has created at Microsemi,” Leibel said in the statement.

‘Misstatement’

“It’s not the degree, or lack thereof, it’s the misstatement to the board and the public that’s the issue,” said Charles Elson, director of the University of Delaware’s John Weinberg Center for Corporate Governance. “When this has happened at other companies, the CEO has been terminated.”

Firing employees who have lied is standard practice at most companies, Elson said. Not applying the same rules to CEOs sets a bad example, he said.

In December, Broadcom Corp. fired Senior Vice President Vahid Manian after questions surfaced about the validity of academic degrees listed on his company biography. Peterson, who described Manian as a friend, served with him on the board of STEC. Manian resigned as a director of STEC on Dec. 4.

Outside Review

The review of Peterson’s credentials, conducted by law firm Munger, Tolles & Olson, found that he earned an associate’s degree from Ricks College, now known as Brigham Young University -- Idaho, Microsemi said. He also earned “substantial” credits toward a bachelor’s degree, the company said.

Microsemi fell 1 cent to $8.40 in Nasdaq Stock Market trading at 4 p.m. New York time. The shares lost 43 percent last year.

The money Peterson pays to Microsemi needs to be weighed against the possibility that the company may be sued, said Steve Smigie, an analyst at Raymond James & Associates in St. Petersburg, Florida.

“It’s just a question of what shareholder reaction will be,” Smigie said. “If there are enough angry people, there’ll be a change.”

Microsemi Vice President Robert Adams declined to comment on the possibility of lawsuits.

The discrepancy in Peterson’s record was uncovered by Barry Minkow, co-founder of the Fraud Discovery Institute, which looks into the backgrounds of executives. Minkow served more than seven years in prison, from 1988 to 1995, after being convicted of fraud while running a company called ZZZZ Best Co.

In December, Minkow said he had put options on STEC and Microsemi shares. Yesterday, Minkow said he no longer holds Microsemi shares or options.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net

Last Updated: January 30, 2009 16:26 EST