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Vitesse Stock Price in Flux Amid Options Inquiry

Posted on: Monday, 24 April 2006, 15:00 CDT

By Gretchen Macchiarella, Ventura County Star, Calif.

Apr. 21--Vitesse Semiconductor Corp.'s stock price fluctuated sharply Thursday as investors wrestled with a stock option investigation involving top executives days before a company earnings report.

The Camarillo company's board of directors announced Tuesday that a special committee has been appointed to review the timing and accounting of past stock options granted to executives, and that CEO Louis Tomasetta, Executive Vice President Eugene Hovanec and Chief Financial Officer Yatin Mody have been placed on administrative leave.

Chris Gardner, vice president and general manager for the network products division, was installed as acting president and chief executive.

Vitesse said it might have to restate financial reports, depending on the findings of the internal investigation.

The company's shares tumbled 20.3 percent on Wednesday, plunging from $3.11 to $2.48. On Thursday, the stock moved as high as $2.78 before closing at $2.70.

Investor chat boards buzzed about the sell-off, the recovery and whether the flurry would start again after the earnings release on Monday. The number of trades Thursday -- 22 million -- was almost double the normal volume.

There is unlikely to be any real news about the investigation on Monday, and the earnings are expected to be good, said Sandy Harrison, an analyst for Pacific Growth Equities in New York.

"I am not expecting any meaningful surprises," he said.

He said most of the discussion right now is speculation about what might be going on at the company.

"The reality of this kind of thing is that you are hard-pressed to have a lot of the larger funds own the stock because there is internal strife," he said.

Analyst estimates for the second quarter are that the firm will have a loss of 3 cents per share, about what it has been for the past year, and that the company will report $58 million in revenue.

The company designs and sells semiconductors for communication and storage networks. The 800 employees are scattered around the world, with the majority in Camarillo, where the corporate offices, test operations, product development, marketing and some manufacturing are housed.

The company has suffered from the tech crash, and was featured last month in a Wall Street Journal story about how some companies' stock options seem fortuitously timed.

The story pointed out that CEOs for UnitedHealth Group Inc. and Vitesse had many options issued shortly before large run-ups in the market price, which allowed the holder to exercise the option, or buy at a low price, and then sell at the higher market price some time later.

Investor Eleanor Mace is watching the events from New Hampshire. She said she has known Tomasetta, founder of Vitesse, since college and has amassed a six-figure stock interest based on her knowledge of him as a good person and businessman. She said the Wall Street Journal article vilified Tomasetta for actions the board of directors took years ago.

"Now a good company and good people are accused of criminal behavior without any real evidence other than a newspaper report that shows that the awarding of stock options during the 1990s bull market and since has flaws that were overlooked during the boom when ¿everybody did it that way,' " she said in an e-mail.

"Most of the excesses and insanity of the last tech wreck could not be criticized at the time but hindsight is always 20/20. Changing policies to fix errors is a reasonable expectation, but making accusations of criminal intent is another matter entirely."

Vitesse's earnings conference call is scheduled for 3 p.m. Monday, after the stock market closes.

On the Net: http://www.vitesse.com

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Copyright (c) 2006, Ventura County Star, Calif.

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VTSS, UNH,

Source: Ventura County Star

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