NEW YORK Dec 6 Two former Vitesse Semiconductor Corp executives were spared prison on Friday after pleading guilty to charges they fabricated company records in an attempt to obstruct an expected investigation into stock-options backdating.
Former Chief Executive Louis Tomasetta and Executive Vice President Eugene Hovanec were each sentenced to three years of probation by U.S. District Judge Jed Rakoff in Manhattan.
At a hearing on Friday, Rakoff called the situation "very unusual" and said he had considered imposing prison terms but decided not to, though "not without very serious doubt." The judge also ordered the defendants to each pay a $30,000 fine.
The defendants each faced up to five years in prison. But in a rare move, prosecutors recommended probation, citing "unique factual circumstances."
Both men had been tried twice following their 2010 indictments on securities fraud and other charges, but those proceedings 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 falsify records 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. Securities and Exchange Commission. Vitesse settled with the SEC for $3 million in 2010.
The case was one of the last of a wave of criminal and civil enforcement actions stemming from a scandal that erupted in 2006 over allegations that companies manipulated stock option dates, often increasing individuals' profits.
Prosecutors had accused Tomasetta, 65, and Hovanec, 61, of inflating company earnings and backdating stock options.
Backdating occurs when companies tie stock options to an earlier date, when share prices are low, but do not properly account for the process.
Tomasetta and Hovanec admitted that in 2006, they and a third executive, Yatin Mody, had fabricated minutes for two meetings in 2001 of Vitesse's compensation committee.
This occurred even though Vitesse was at the time conducting an internal investigation after The Wall Street Journal raised questions about stock option practices at companies including Vitesse, and company lawyers had warned that an SEC investigation was likely, court papers show.
Tomasetta and Hovanec said they later realized that altering the minutes was wrong, and told internal investigators what they had done. They were eventually fired.
The original indictment accused Tomasetta and Hovanec of illegally backdating stock options issued over a 3-year period starting in 2001, and scheming to mislead investors about Vitesse's business from 2001 to 2006.
Mody, a former chief financial officer, and Nicole Kaplan, a former director of accounting, pleaded guilty to fraud in 2010 and cooperated with prosecutors. Sentencings are scheduled for Jan. 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.