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Former Vitesse Executives Inflated Sales, Prosecutor Says

Two former executives of Vitesse Semiconductor Corp. illegally inflated sales figures and backdated stock options, a prosecutor told jurors in closing arguments at their federal conspiracy and securities fraud trial in Manhattan.

Louis Tomasetta, the former chief executive officer of Vitesse, the Camarillo, California-based maker of integrated circuits, and ex-executive vice president Eugene Hovanec are charged with orchestrating a fraudulent scheme to meet sales targets from 2001 to 2006.

“Missing Tomasetta’s targets was not an option because it would hurt the company’s stock price and embarrass management,” Assistant U.S. Attorney Katherine Goldstein told a jury of 12 with four alternates in her closing argument today.

Tomasetta and Hovanec were motivated by pride and greed, Goldstein argued at the end of their trial, which began March 22. The two men, who deny wrongdoing, face as much as 20 years in prison if convicted of the most serious charges against them.

Vitesse agreed in 2007 to pay $8.75 million to settle shareholder suits related to the alleged accounting fraud and in 2010 settled claims by the U.S. Securities and Exchange Commission for $3 million.

Yatin Mody, Vitesse’s former chief financial officer, and its ex-director of accounting, Nicole Kaplan, pleaded guilty to securities fraud and other charges in 2010. They testified against Tomasetta and Hovanec in the trial.

Side Agreements

Goldstein said the defendants shipped millions of dollars worth of products to Nu Horizons Electronics Corp., a distributor, near the end of financial quarters and fraudulently recorded the shipments as revenue. Vitesse and Nu Horizons had secret side agreements that let the distributor make unlimited returns of the products to Vitesse, she said.

Tomasetta and Hovanec were fired in May 2006 in an internal probe of options backdating. The men created phony documents, including compensation committee minutes and a Palm Pilot entry, in an attempt to show the options were approved at earlier meetings and weren’t backdated, Goldstein told the jury today.

A lawyer for the company told the executives they would have to record $100 million in compensation expenses if the meetings didn’t take place, the prosecutor said.

“You can prepare minutes days later,” Tomasetta’s lawyer, Dan Marmalefsky argued to the jury. “You can prepare them weeks, years later.”

Marmalefsky said his client wasn’t involved in detailed accounting decisions that were made by others in the company. Defense closing arguments are scheduled to continue tomorrow.

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

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