Ex-Vitesse executives avoid prison in backdating-related case


By Nate Raymond

NEW YORK, Dec 6 (Reuters) - Two former Vitesse SemiconductorCorp executives were spared prison on Friday afterpleading guilty to charges they fabricated company records inan attempt to obstruct an expected investigation intostock-options backdating.

Former Chief Executive Louis Tomasetta and Executive VicePresident Eugene Hovanec were each sentenced to three years ofprobation by U.S. District Judge Jed Rakoff in Manhattan.

At a hearing on Friday, Rakoff called the situation "veryunusual" and said he had considered imposing prison terms butdecided not to, though "not without very serious doubt." Thejudge also ordered the defendants to each pay a $30,000 fine.

The defendants each faced up to five years in prison. But ina rare move, prosecutors recommended probation, citing "uniquefactual circumstances."

Both men had been tried twice following their 2010indictments on securities fraud and other charges, but thoseproceedings ended in mistrials, the last in February.

The two eventually agreed in August to plead guilty to one count each of conspiracy to destroy, alter, or falsifyrecords in contemplation of a federal investigation

"I paid a big price for this, and I will never do it again,"Tomasetta told Rakoff at Friday's hearing.

In September, Tomasetta agreed to pay $100,000 and Hovanec$50,000 in civil fines in settlements with the U.S. Securitiesand Exchange Commission. Vitesse settled with theSEC for $3 million in 2010.

The case was one of the last of a wave of criminal and civilenforcement actions stemming from a scandal that erupted in 2006over allegations that companies manipulated stock option dates,often increasing individuals' profits.

Prosecutors had accused Tomasetta, 65, and Hovanec, 61, ofinflating company earnings and backdating stock options.

Backdating occurs when companies tie stock options to anearlier date, when share prices are low, but do not properlyaccount for the process.

Tomasetta and Hovanec admitted that in 2006, they and athird executive, Yatin Mody, had fabricated minutes for twomeetings in 2001 of Vitesse's compensation committee.

This occurred even though Vitesse was at the time conductingan internal investigation after The Wall Street Journal raisedquestions about stock option practices at companies includingVitesse, and company lawyers had warned that an SECinvestigation was likely, court papers show.

Tomasetta and Hovanec said they later realized that alteringthe minutes was wrong, and told internal investigators what theyhad done. They were eventually fired.

The original indictment accused Tomasetta and Hovanec ofillegally backdating stock options issued over a 3-year periodstarting in 2001, and scheming to mislead investors aboutVitesse's business from 2001 to 2006.

Mody, a former chief financial officer, and Nicole Kaplan, aformer director of accounting, pleaded guilty to fraud in 2010and cooperated with prosecutors. Sentencings are scheduled forJan. 8 for Kaplan and Jan. 9 for Mody.

The case is U.S. v. Tomasetta et al, U.S. District Court,Southern District of New York, 10-cr-1205.

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