Two former Vitesse Semiconductor Corp. (VTSS:US) executives conspired to misstate earnings at the chipmaker from 2001 to 2006, a prosecutor said in his closing argument in their criminal trial.
Louis Tomasetta, a co-founder and former chief executive officer of Vitesse, and former chief financial officer Eugene Hovanec are charged with a scheme to meet financial targets by backdating stock options and falsely inflating sales at the Camarillo, California-based maker of integrated circuits.
“This is a single overarching scheme to make their company look like it was doing better than it really was,” Assistant U.S. Attorney John O’Donnell told jurors today in Manhattan federal court.
This is the second time Tomasetta and Hovanec have faced trial. U.S. District Judge Paul Crotty in April declared a mistrial on the fourth day of deliberations after jurors said they couldn’t reach a unanimous decision on any of the seven criminal counts against the two men. Their retrial began Jan. 22.
Prosecutors in the office of U.S. Attorney Preet Bharara filed a new indictment in December, dropping most of the counts and charging each of the men with a single count of conspiracy to commit securities fraud. If convicted, Tomasetta and Hovanec face as long as five years in prison.
O’Donnell told jurors that the former executives 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 a secret side agreement that let the distributor make unlimited returns of the products to Vitesse, he said. The practice allowed Vitesse to meet its quarterly revenue targets when sales started to slump beginning in 2001.
Prosecutors said the men later created phony documents, including compensation committee minutes, to show that options were approved at earlier meetings and weren’t backdated.
“Mr. Tomasetta built this company. It was his baby,” O’Donnell argued. “He couldn’t tolerate negative revenues.”
Tomasetta and Hovanec were both fired in May 2006.
The two men claim other employees were responsible for the company’s accounting.
“He is somebody who could not possibly know everything at a company that employs more than 1,000 people,” Daniel Marmalefsky, a lawyer for Tomasetta, argued to the jury in his closing argument today.
Jurors heard testimony from Yatin Mody, Vitesse’s former vice president of finance, and its ex-director of accounting, Nicole Kaplan. The two former executives pleaded guilty to securities fraud in 2010 and are cooperating with prosecutors in hopes of leniency when they’re sentenced.
Marmalefsky told jurors today that the allegations about inflated revenue and backdated options don’t have anything to do with one another and aren’t part of the single conspiracy charged by prosecutors. At the start of the trial, lawyers for both men argued that Mody and Kaplan, who also testified in the first trial, weren’t telling the truth.
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.
Marmalefsky is scheduled to finish his closing argument on behalf of Tomasetta tomorrow morning. Hovanec’s lawyer will follow.
The case is U.S. v. Tomasetta, 10-1205, U.S. District Court, Southern District of New York (Manhattan).
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