Executives Fired over Stock Option Dating Issue

May 17, 2006 (PLANSPONSOR.com) - Vitesse Semiconductor Corp. has terminated its chief executive officer (CEO) and chief financial officer (CFO) as a result of its internal probe into possible improper dating of stock options.

The Wall Street Journal reports that Executive Vice President Eugene Hovanec has been terminated in addition to CEO Louis Tomasetta and CFO Yatin Mody.   The three had been suspended in April, a decision the company said was related to the “integrity of documents” involving its stock option program.

Vitesse later delayed its quarterly report and hired a turnaround firm after it said its board had discovered additional accounting issues that called into question more than three years of financial results, according to the WSJ.

Analysis of options awards at some companies has shown that executives benefited from extraordinary timing, getting grants dated at times when share prices hit lows. The “strike price” on options generally is equal to the market price on the day they are granted by a company’s board. The lower the strike price, the greater the chance for future profit, the news report said.

The SEC is examining whether the effective dates on some of those options were deliberately and improperly backdated.   Earlier in the month UnitedHealth said the SEC was conducting an informal inquiry into its stock option practices (See UnitedHealth Under Fire for Stock Options).

According to the WSJ, several weeks ago, the CEO and two other officials of Comverse Technology Inc. resigned during a board probe of possible backdating of stock options grants.

Tomasetta and Mody were replaced by Christopher Gardner, the acting CEO, and Shawn Hassel of Alvarez & Marsal LLC, the acting chief financial officer.