Bloomberg News

Ex-Vitesse Executives’ Second Trial Ends With No Verdict

February 20, 2013

The prosecution of two former Vitesse Semiconductor Corp (VTSS:US). executives ended with a mistrial for the second time when a jury deadlocked on charges that they conspired to misstate earnings at the chipmaker.

U.S. District Judge Paul Crotty in Manhattan declared a mistrial today, after a little more than two days of deliberations, in the case of Louis Tomasetta, a co-founder and former chief executive officer of Vitesse, and former chief financial officer Eugene Hovanec.

“We believe that the proper thing to do right now would be for the charges to be dismissed,” Gary Lincenberg, a lawyer for Hovanec, said in a phone interview. “I want my client to be able to move on with his life.”

The two men were 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.

In the first trial, 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.

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, which carries a maximum of five years in prison. The retrial began Jan. 22.

‘Seven Years’

“After seven years of investigation, civil lawsuits settled many years ago, and now a second lengthy criminal trial that ended in a mistrial after another jury deadlocked, it is my hope that the government will now close its case,” Dan Marmalefsky, a lawyer for Tomasetta, said in an e-mail.

Jerika Richardson, a spokeswoman for Bharara, declined to comment on the mistrial and whether the office would seek to try the case again.

Jurors said in a note to the court yesterday afternoon that they found themselves “hopelessly deadlocked at 6 vs. 6 over the issue of whether the government has proved or not their case.”

At 11:37 a.m. today they submitted another note saying “we remain deadlocked.”

‘Overarching Scheme’

Throughout their deliberations, they raised questions on issues such as venue, statute of limitations, and the phrase “overarching scheme” used in the judge’s instructions, according to their notes to the court.

In a letter to the court yesterday regarding the jury’s request for further clarification, prosecutors said the government has “consistently objected to the single overarching conspiracy language.”

“It incorrectly defines the scope of the conspiracy charged in the indictment, is unnecessary, and is confusing,” prosecutors said.

Prosecutors claimed the former executives shipped millions of dollars’ worth of products to a distributor, Nu Horizons Electronics Corp., near the end of financial quarters and fraudulently recorded the shipments as revenue.

Vitesse and Nu Horizons had a side agreement, kept secret from the company’s investors, auditors and directors, that let the distributor make unlimited returns of the products to Vitesse, the government claimed. The practice allowed Vitesse to meet its quarterly revenue targets when sales slumped beginning in 2001, prosecutors said.

Outside Investigation

Tomasetta and Hovanec were both fired in May 2006 amid an outside investigation into the company’s options grants.

Tomasetta and Hovanec argued they weren’t responsible for the accounting errors, instead blaming them on lower-level employees. They denied the government’s accusation that they backdated options grants to give employees in-the-money options while avoiding the necessity of recording a compensation expense.

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.

The case is U.S. v. Tomasetta, 10-1205, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Christie Smythe in Brooklyn at csmythe1@bloomberg.net Patricia Hurtado in New York at pathurtado@bloomberg.net;

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • VTSS
    (Vitesse Semiconductor Corp)
    • $3.68 USD
    • -0.09
    • -2.45%
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