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Vitesse Semiconductor SEC Settlement Is Approved by Judge

Vitesse Semiconductor Corp. (VTSS)’s settlement of Securities and Exchange Commission allegations that the company fraudulently inflated revenue and backdated stock options was approved by a federal judge.

U.S. District Judge Jed S. Rakoff in Manhattan today approved proposed consent judgments between the company, two of its former executives, and the SEC whereby the defendants neither admitted nor denied wrongdoing. The Camarillo, California-based chipmaker agreed to pay a $3 million penalty.

Rakoff said in his order that the SEC’s practice of settling claims where the defendant is allowed to neither admit nor deny the allegations is a disservice to the public.

“Here an agency of the United States is saying, in effect, ‘although we claim that these defendants have done terrible things, they refuse to admit it and we do not propose to prove it, but will simply resort to gagging their right to deny it,’” the judge said.

Rakoff said that in this particular case that issue was less significant because the two former executives, Yatin Mody and Nicole Kaplan, have pleaded guilty in related criminal proceedings and the company agreed to pay $3 million despite its current financial difficulties.

The SEC filed the civil claims in December at the same time federal prosecutors charged former Vitesse Chief Executive Officer Louis Tomasetta and ex-Executive Vice President Eugene Hovanec with securities fraud stemming from an options- backdating scheme. Tomasetta and Hovanec, who were named as defendants in the SEC case, aren’t part of the SEC settlement.

‘Rubber Stamps’

“Simultaneous with filing the complaint on December 10, 2010, the SEC, confident that the courts in this judicial district were no more than rubber stamps, filed proposed consent judgments against Vitesse, Mody, and Kaplan without so much as a word of explanation as to why the court should approve these,” Rakoff said in his order.

Ronda Grech, a Vitesse spokeswoman, didn’t immediately return a call to her office after regular business hours.

John Nester, an SEC spokesman in Washington, didn’t immediately return a phone call to his office after regular business hours or respond to an e-mailed request for comment.

The case is SEC v. Vitesse, 10-9239, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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