SEC v. VITESSE SEMICONDUCTOR CORPORATION

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF 
NEW YORK 
SECURITIES AND EXCHANGE COMMISSION, 
Plaintiff: 
v. 
VITESSE SEMICONDUCTOR CORPORATION, 
LOUIS 
R. TOMASETTA, EUGENE F. HOVANEC, 
1/\· eN-a') 3 9
 
No~ Ci . V';::; ..
 
COMPLAINT AND ~~~/';::
 
JURY DEMAND /:f 
YATIN D. MODY, AND NICOLE 
R. KAPLAN 
Defendants. 
SUMMARY 
1. During the period in or about 1995tbroughApri12006, defendant Vitesse 
SemiconductorCorporation (''Vitesse'' 
or the "Company") engaged in fraudulent revenue 
recognition practices and stock options backdating misconduct. This fraud was orchestrated 
by 
certain ofVitesse's most senior fonner executives. 
2. Starting in 
or about September 2001 and not ending until April 2006, Vitesse 
engaged in 
an elaborate channel stuffing scheme in order to improperly record revenue on 
...4-·--: 
product shipments. Defendants Louis R. Tom-asetta ("Tomasetta"), co-founder and former Chief 
Executive Officer ("CEO") and director ofVitesse, Eugene F. Hovanec ("Hovanec"), former 
ChiefFinancial Officer ("CFO") and Executive Vice-President ofVitesse, Yatin Mody, former 
ControllerandCFO, andNicoleKaplan, formerManagerandDirector ofFinanceofVitesse, 
each knowingly played a significant role in the Company's execution ofthis fraud. Specifically, 
Tomasetta, Hovanec, 
Modyand Kaplan caused the Company to immediately recognize revenue 

and record invalid accounts receivable for product shipped at period end to its largest distributor, 
Nu Horizons Electronics Corporation, even though it had an unconditional right to return all of 
the product. The right ofreturn was accomplished through undisclosed side letters and oral 
agreements. The effect 
ofthis fraud was to materially inflate the revenue that the Company 
reported in its financial statements in 14 quarters from September 2001 through early 2006. 
3. Tomasetta, Hovanec, Mody and Kaplan compounded their fraudulent revenue 
recognition practices 
by failing to timely record credits that were generated by Nu Horizons' 
return 
ofproduct tied to the invalid accounts receivable. 
4. In order to conceal the true age ofthe accounts receivable created by the failure to 
timely record credits from the Company's external auditor ("Auditor"), Hovanec and Kaplan 
then directed that cash receipts received 
by Vitesse from Nu Horizons and other customers be 
misapplied to these aged invalid receivables. Some 
ofthe cash received from Nu Horizons, in. 
the form ofprepayments, was used to camouflage the aged receivables. Hovanec personally 
negotiated the amount 
ofthese prepayments. 
5. From 1995 to 2006, Tomasetta and Hovanec also engaged in a scheme to 
backdate stock option grant dates for their personal benefit and the benefit 
ofother Vitesse 
executives and employees, Tomasetta and Hovanec intentionally selected grant dates that were 
days, weeks, and months in the past. 
Tomas~t4tand Hovanec used option grant dates that were 
different from the dates 
on which Vitesse's Compensation Committee had actually approved and 
granted 
the options. Tomasetta and Hovanec disregarded the Compensation Committee's 
r· 
approval dates because they wanted to pick trading dates for the grants that coincided with low 
points in the Company~s stock price. Those favorable prices were used as the exercise prices for 
2
 

the options. Tomasetta and Hovanec also used hindsight to reprice option grants as Vitesse's 
stock price declined. 
.
6. In total, Tomasetta and Hovanec backdated or repriced 40 option grants to 
thousands 
ofemployees. These options represented over 60% ofthe total options that ViteSse 
awarded from 1995 to 2006 to newly hired and existing employees and officers. Tomasetta and 
Hovanec collectively reaped millions 
ofdollars in illicit profits from exercising backdated 
options. Despite representing in Vitesse's periodic filings made with the Commission that the 
Company did not grant in-the-money options and complied with applicable accounting rules, 
Tomasetfa and Hovanec intentionally manipulated grant dates in order to award in-the-money 
options and failed to ensure that Vitesse properly recorded compensation expenses for the 
backdated grants. As a result 
ofthe backdating, Vitesse failed to record approximately $184 
million in compensation expense, overstating its pretax income 
or understating its pretax loss by 
as much as 45% annually for its fiscal years 1996 through 2005. 
7. In addition, after the Wall Street Journal (''Journal'') questioned Vitesse in 
November 2005 about the legitiniacyofits option granting practices, Tomasetta and Hovanec 
engaged in a cover up to hide some 
oftheir prior option backdating misconduct. Between 
November 2005 and April 2006, Tomasetta and Hovanec lied 
to Vitesseboardmembers and to 
Vitesse's Auditor 
by falsely telling them that..wtoption grants were proper and correctly 
. z" 
accounted for in the Company's books. 
8. In furtherance oftheir cover-up, Tomasetta and Hovanec also fabricated minutes 
oftwo non-existent 2001 meetings during which Vitesse's Compensation Committee purportedly. 
granted stock options
•. Tomasetta and Hovanec inserted these fabricated minutes into the stock 
option administrator's computer and turned back the clock 
on the computer thereby creating the 
3
 

false appearance that the minutes had been written at the same time as when the purported 
meetings occurred. During an interview ofTomasetta 
by Vitesse's attorneys, who had begun an 
internal investigation; Tomasetta admitted to these lawyers that he had told Hovanec and Mody 
that this conduct 
"is the Martha Stewart thing, this is  dumb, we need to stop -we're going to go 
to jail." 
9. Tomasetta also inserted the dates ofthese two fictional meetings into his Palm 
Pilot thereby creating the fayade that these 
two phantom meetings had actually happened. 
Additionally, on or about December 2005, Hovanec directed his assistant to create a third set of 
fabricated Compensation Committee meeting minutes to falsely substantiate another backdated 
grant date from 2003. 
10. Based 
on its conduct, Vitesse engaged in acts, practices and courses ofbusiness 
that violated Section 17(a) 
ofthe Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)], 
Sections10(b),13(a),13(b)(2)(A),13(b)(2)(B),and 14(a) 
oftheSecuritiesExchangeAct of 
1934 ("Exchange ACt") [15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B), 78n(a)] 
and Exchange Act Rules IOb-5, 13a-l, 13a-13, 12b-20, and Rule 14a-9 [17 C.F.R. 
§§ 240.lOb-5, 
240.13a-l, 240.13a~13, 240.12b-20, 240.l4a-9]. 
11. Based 
on their conduct, defendants Tomasetta and Hovanec each engaged in acts, 
practices and courses 
ofbusiness that violate(l~ection 17(a) ofthe Securities Act[15 U.S.C. § 
.' i~,~ 
o' 
77q(a)], Sections 1O(b), 13(b)(5), and 16(a), and ofthe Exchange Act [15 U.S.C. §§ 78j(b), 
78m(b)(5), and 78p(a),] and Exchange Act Rules 1
Ob-5, 13a~14, 13b2-1; 13b2-2, and 16a-3 [17 
C.F.R. 
§§ 240.lOb-5, 240.13a-14, 240.13b2-1, 240.13b2-2, and 240. 16a-3]. Tomasetta also 
violated Section 14(a) 
ofthe Exchange Act [15 U.s.C. § 78n(a)] and Rule 14a-9 thereunder [17 
C.F.R. § 240.14a-9]. 
4 

12. Based on their misconduct, defendants Mody and Kaplan engaged in acts, 
practices and courses 
ofbusiness that violated Section 17(a) ofthe Securities Act [15 U.S.C. § 
77q(a)], Sections 10(b) and 13(b)(5) ofthe Exchange Act [15 U.S.C. §§ 78j(b) and 78m(b)(5)], 
and Exchange Act Rules 10b-5, 
13b2-l, and 13b2-2 [17 C.F.R. §§ 240. 1Ob-5, 240.13b2-l, and 
240.l3b2-2]. Mody also violated Exchange Act Rule 13a-14 [17 C.F.R. 
§ 240.13a-14]. 
13. 
In addition, ~omasetta, Hovanec, Mody, and Kaplan each aided and abetted 
Vitesse's violations 
ofExchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) [15 U.S.C. §§ 
78m(a), 78m(b)(2)(A), and 78m(b)(2)(B)] and Exchange Act Rules l2b-20, 13a-l and 13a-13 
[17 C.F.R. 
§§ 240.13b-20, 240.13a-l and 240.13a-13]. 
14. Unless enjoined, defendants Vitesse, Tomasetta, Hovanec, Mody and Kaplan are 
likely to commit such violations 
in the future. Vitesse, Tomasetta, Hovanec, 
Mody and Kaplan 
should 
be permanently enjoined from doing so. In addition, defendants Tomasetta, Hovanec, 
Mody and Kaplan should be ordered to disgorge ariy ill-gotten gains or benefits derived as a 
result 
ofthese violations and prejudgment interest thereon, and be ordered to pay civil monetary 
penalties. Further, defendants Tomasetta, Hovanec, and 
Mody respectively should be prohibited 
from acting as an officer 
or director ofany issuer that has a class ofsecurities registered pursuant 
to Exchange Act Section 12 [15 U.S;C. § 781] 
or that is required to file reports pursuant to 
..Exchange Act Section 15(d) [15 U.S.C. § 789(4)]. '.> 
JURISDICTION AND VENUE 
15. TheCourthasjurisdictionoverthisactionpursuantto'Sections20(b)and22(a) of 
the Securities Act [15 U.S.C. §§ 77t(b) and 77v(a)] and Sections 2l(d), 2l(e) and 27 ofthe 
Exchange Act [15 U.S.c. §§ 78u(d), 78u(e), and 78aa]. The defendants, directly or indirectly, 
havemadeuse 
ofthemeansand instrumentalities ofinterstatecommerce, ofthemails,orofthe 
5
 

facilities ofa national securities exchange in connection with the acts, transactions, practices and 
courses ofbusiness alleged in this Complaint. 
16. Venue is proper pursuant to Section 22 
ofthe Securities Act [15 U.S.c. § 77v] 
and Section 27 
ofthe Exchange Act [15 U.S.C. § 78aa] because certain ofthe acts alleged herein 
constitutmg violations 
ofthe Securities Act and the Exchange Act occurred in this District, 
including trading in the shares ofVitesse on the Nasdaq National Market and because certain 
shareholders 
ofVitesse were located in this District. 
DEFENDANTS 
17. . Vitesse Semiconductor Corporation is a majorproducer ofhigh-performance 
integrated circuits for use primarily 
by systems manufacturers in the storage and communications 
industries. Vitesse was incorporated in Delaware in 1987, is  headquartered in Camarillo, 
California, and maintains a September 30
th 
fiscal year-end. Vitesse's quarters respectively end 
on December 31 st, March 31 st, June 30
th
, 
and September 30
th
• 
During the relevant period, the 
Company's common stock was registered with the Commission pursuant to Section 12(g) 
ofthe 
. Exchange Act and traded on the Nasdaq National Marketunder the symbol VTSS. The 
Company's common stock is currently traded 
on the Pink Sheet System ofQuotation under the 
symbol ''VTSS.PK.'' 
18. .Vitesse was unable to restate itsthistorical financial statements to reflect the 
.;" . 
impact ofthe miscoI1duct described in this Complaint. In September 2008, in its first periodic 
report filed with the Commission after discovering the fraud, Vitesse filed a Form 10-K for its 
fiscal years ended·September 
30,2006 and 2007. Although its fiscal 2006 financial statements 
contain one restated quarter (the first quarter of2006), Vitesse reported that 
it was unable to 
restate its financial statements prior to September 30, 2005, 
or estimate the financial impact of 
6
 

the improper accounting and sale practices, because it  could not rely on poor or non-existent 
accounting records and because key accounting controls were circumvented 
by management or 
did not exist. Vitesse included in this filing a "stock options restatement" ("Stock Options 
Restatement"), which recorded $268 million 
ofadjustments for unrecorded compensation 
expenses from 
the Company's inception in 1987 through 2005. The Company's Form 10-K 
disclosed that its inability to provide audited financial statements for fiscal years prior to 2006 
meant that it was not current in its Exchange Act reporting obligations. 
As set forth below, 
Tomasetta, Hovanec, 
Modyand Kaplan had all ceased working at Vitesse by May 2006. 
19. 
Louis R. Tomasetta, age 62, is a resident ofOJai, California. Tomasetta co­
founded Vitesse in 1987. From 1987 until May 
of2006, Tomasetta served as President, Chief 
ExecutiveOfficer, andas a Director 
oftheCompany;Tomasettatook theCompanypublic in 
December 1991. On May 17, 2006, the Board ofDirectors ofVitesse terminated Tomasetta 
because
ofconcernsregardingtheintegrity ofdocuments evidencingtheCompany'sstock 
.option grant practices.	 
In testimony during the Commission's investigation in this matter, 
Tomasetta asserted his Fifth Amendment privilege against self-incrimination. 
20. 
Eugene F. Hovanec, age 59, is a resident ofWestlake Village, California. 
Hovanec became licensed as a Certified Public Accountant ("CPA") in 1976 
in New York. His 
current license expires in 2011. At Vitesse, 
1j:".ofuDecember 1993 through April 2005, Hovanec 
.   .	 .!. .~ 
'.'-;. 
served as Vice President ofFinance and ChiefFinancial Officer~ In April 2005, Ilovanec was 
named Executive Vice President, relinquishing his role as CFO to Yatin Mody. Hovanec served 
as Executive Vice President until May 17, 2006 when he 
was terminated by the Board 
of 
Directorsdueto concernsregarding theintegrityofdocumentsevidencingtheCompany'sstock 
7
 

--
.. 
option grant practices. In testimony during the Commission's investigation in this matter, 
Hovanec asserted his Fifth Amendment privilege against self.,.incrimmation. 
21. During 
histenun~ at Vitesse, Hovanec also served from 1994 through 2007 as a 
director at Interlink Electronics, Inc., a u.S.. public company. He served on both Interlink's' 
Audit Committee and Compensation Committee throughout these years: For Interlink's fiscal 
years2003 through2006,Interlink'sBoard ofDirectorsdetenninedanddisclosedthat Hovanec' 
wasanaudit committeefinancialexpert.withinthemeaning oftheCommissionrulepromulgated 
under Section 407 
ofthe Sarbanes-Oxley Act of2002, Item 401(h) ofRegUlation S~K. 
. ­
22;' From 1989 to 1993, H.ovanec served as Vice PresidentFinance&Administration, 
.. 
ChiefFinancialOfficer, andCorporateSecretaryandTreasureratpublicallytradedDigital 
Sound Corporation. Prior to that, from 1984 through 1989, 
he served as Vice President, 
Controller and Corporate Controller at Micropolis Corporation, a private company. 
From 1980 . 
thr6:ugh 1984, Hovanec was a Division Controller at Eocom Electronic Systems, a division 
of 
Hoechst CelarieseCorporation, and from 1976 through 1980, Hovanec's title was Corporate 
SpecialProjects at Hoechst Celanese Corporation, a German public company not listed in the 
. United States. 
From 1972 ~til 1976, Hovanec worked as a senior accountant at Arthur 
Andersen in 
New York. 
23. 
YatiJi D. Mody,. age 47, is a r~iPent ofWest1ak~ Village, California. Mody 
~~ . 
beganworkat Vitessein 1992and ~eived as Controller from 1993 through November 1998, at 
which time he was promoted toVice President and Controller. Mody's job title changed slightly 
in 2007 
to Vice President, Finance and Controller. In Apri12005, he was promoted to Chief 
Financial Officer and thereafter served as Vice President, Finance and ChiefFinancial Officer. 
OnMay 17, 2006, the Board tenninated Modydue to concerns regarding the integrity of 
8
 

documents evidencing the Company's stock option grant practices. Mody is  a licensed CPA. He 
obtained a California CPA license in November 1990; his license is currently inactive and is set· 
to expire. 
on March 31,2011. Prior to his work at Vitesse, Mody worked as an auditor at 
Deloitte& Touche. 
24. Nicole R. Kaplan, age 39~ is  a resident ofAgoura Hills, California. Kaplan 
beganworkat Vitessein 1998 asManager ofFinance,and in2004shebecameDirector of 
Finance. Kaplan obtained a California CPA license in 1996; her license expired in February 
.. 
2005 and the California Board ofAccountancy identifies her license as ca.t:iceled. Prior to 
working at Vitesse, Kaplan was employed as 
an auditor with KPMG LLP for approximately four 
years. Kaplan was a member 
ofthe audit team with the Auditor that conducted theJ995 and. 
1996 audits ofVitesse's financial statements. In the fall of2005, Kaplan left Vitesse on . 
maternity leave. Kaplan officially resigned :from Vitesse 
onApril14, 2006. 
RELATED ENTITY 
25. Nu Horizons Electronics Corporation ("Nu Horizons") is a public company 
incorporated 
in Delaware and located in New York. Nu Horizons and its subsidiaries are 
engaged in the distribution ot: and provide 
supply chain services for, high technology electronic 
cOmponents•. Since mid-200l 
,Nu Horizons has been, and continues to be, the exclusive North 
American distributor for Vitesseproducts. Opring 
the relevant period, the company's common 
.-.. : ...... 
stockwasregisteredwiththeCommissionpursuantto Section12(g) oftheExchangeAct and 
traded on· the Nasdaq National Market under the symbol NUHC. 
9
 

---
FACTS
 
A.	 IMPROPER REVENUE RECOGNITION 
26. Likemanysemiconductorcompanies,Vitessewaspart ofthetechnologybubble 
that burst in 2000. Despite reporting over $28 million ofnet income for fiscal year 2000, Vitesse 
posted both a loss from operations and a net loss in each fiscal year from 2001 through 2005. 
The company's losses from operations during this period ranged from approximately $33 million 
.. to as much as $167 million. During this time, the amount ofrevenue Vitesse reported each 
period became an increasingly important measure ofthe Company's perceived health. As such, 
Tomasetta, Hovanec, Mody, 
arid Kaplan orchestrated a multi-year fraudulent scheme to give 
investors the false impression that Vitesse'srevenues were better than they were in reality. From 
at least September 2001 through Apri12006, Tomasetta, Hovanec, Mody and Kaplan engaged 
iil 
a wide array offraudulent accounting practices tointlate reported revenue. 
1.	 The Relevant GAAP Revenue Recognition Criteria
 
And Vitesse's Disclosures
 
27. .' Under Generally Accepted Accounting Principles ("GAAP"), revenue is generally 
recognized when it 
is realized or realizable and earned. Revenue is considered earned when a 
company has substantially accomplished what it must do to be entitled to the benefits represented
by the revenues. These two conditions, realized and earned, are ordinarily met by the time the 
,.,t·.~· . .-. ~.':' 
product is delivered to customers. When a right ofreturnexists, GAAP requires that certain 
conditions be met before a company can recognize revenue. The required conditions include that 
the buyer's obligation to pay the seller is not contingent on r~ale ofthe product and that a 
company be able to reasonably forecast the amount 
ofproduct returns. GAAP presumes that 
when the return period is long, a company cannotreasonably forecast product returns, and thus 
revenue recognition is generally precluded. GAAP also presumes that when the product 
is 
10
 

-susceptible to significant external factors, such as technological obsolescence or changes in 
demand, a company is unable to forecast product returns, and thus revenue recognition 
is 
precluded. 
28. In each 
ofits annual reports filed on Forms 10-K up to and including its 2001 
Form 10-K, Vitesse disclosed its revenue recognition policy as a policy where "production 
revenue is recognized when products 
are shipped to customers, which is when title and 
riSk of 
loss transfers to the customer." Beginning in 2002, and continuing through 2005, Vitesse 
disclosed that its ''production revenue 
is recognized when persuasive evidence ofan arrangement 
exists, the sales price is  fixed, products' are shipped to customers, which is  when title and 
risk of 
loss transfers to the customer, and collectability is reasonably assured.". This language is similar 
to the language 
ofStaffAccounting Bulletin ("SAB") 101, which Vitesse adopted in the fourth 
quarter 
ofits 2001 fiscal year. 
. 2. Vitesse Improperly RecogniZed Revenue upon Shipment 
OfProduct to Nu Horizons from 2001 to 2006 
29. In August of2001, Tomasetta and Hovanec, among others, engaged in 
discussions with 
Nu Horizons concerning the execution ofa product distribution agreement 
between the 
two companies. After several weeks ofnegotiations, Vitesse and Nu Horizons 
executed an Authorized Preferred Distributor Agreement ("Distribution Agreement"). Under the 
.~...f .' 
Distribution Agreement, Vitesse was to shipto;Nu Honzons certain product for which Vitesse 
had already identified customer demand. Vitesse actually shipped, however, whatever product it 
had manufactured 
without any cOnsideration for 
Nu Horizons' existing or forecasted demand. 
Vitesse, moreover, granted NuHorizons an unfettered right 
ofretum on this inventory. From 
September 2001 through April 2006, Vitesse routinely used its re1ationshipwith 
Nu Horizons to 
11
 

wrongly record revenue on such shipments and correspondingly failed to reduce revenue and 
accounts receivable when product was returned. 
30. Vitesse did not disclose in its periodic filings made with the Commission the 
existence 
ofthe Distribution Agreement with Nu Horizons until more than 15 months after the 
relationship began. In fact, Vitesse did not disclose the distributor relationship with 
Nu Horizons 
until December 2002 when it  filed its 
Form 10-K for the fiscal year 2002 with the Commission. 
The 
Company's 2002 Form 10-Kstatedthat "certain ofthe Company's productionrevenue are 
made to a major distrihutor under an agreement allowing for price protection and right 
ofreturn 
on products unsold. Accordingly, the Company defers recognition ofrevenue on such products 
until the products are sold 
by the distributor to the end user." This practice was commonly 
referred 
to as a "sell-through" model. Similar language appears in each Form 10-K filed by 
Vitesse with the Commission through December 2005. 
31. 
In or about September 2001, Vitesse management, including Tomasetta and 
Hovanec, intentionally withheld information about the Distribution Agreement with 
Nu Horizons 
~ . 
from its Auditor. When Vitesse finally disclosed information about the Distributor Agreement in 
its 2002 
Form 10-K, it did so in the form ofa misrepresentation. Vitesse falsely informed 
investors that it "defers recognition 
ofrevenue on such products [shipped to the distrihutor] until 
such products are sold 
by the distributor to th~ end user." '.': .
• ,I' __ 
a. The September 2001 Imtial Stocking Package 
32. The Distribution Agreement with Nu Horizons contained an undisclosed side 
letter that included purchase orders and unconditional return rights referred to as the initial 
stocking package ("ISP"). At the beginning 
ofthe agreement in 2001, Hovanec suggested to the 
President 
ofNu Horizons that the dollar amount ofthe ISP be approximately $40 million. The 
12
 

Vitesse side letter explicitly granted Nu Honzons "the right to a one time credit and return for all 
unsold products against" the ISP. Hovanec knew ofthe existence ofthis side letter. 
33. Because 
Nu Horizons had an unconditional right to return all the product from the 
ISP, the risk 
ofloss on the ISP inventorynever passed from Vitesse to Nu Horizons. In fact, Nu 
Horizons began returning ISP inventory almost 
as soonas.it was received and continued 
returning product as many 
as18 months after shipment. Notably, in February 2002 alone, Nu . 
Horizons returned nearly $8.2 inillion 
ofISP inventory to Vitesse. 
34. 
On November 18, 2002, approximately 13 and ~ months after Vitesse had 
already recognized the ISP revenue, Nu Horizons returned more than $2 million 
ofISP . 
inventory. Tomasetta personallY approved Nu Horizons' return 
ofmore than $2 mlliion 0 f ISP 
inventory in November 2002. 
35. . At September 30, 2001, Vitesse had already improperly recorded approximately 
$40 million 
ofrevenue from the ISP even thoughNu Horizons had sold to end-use customers 
only $425,000 
ofISP inventory. As a result ofVitesse's recognition ofthe entire ISP as revenue 
in fiscal year 2001, it  had overstated its revenue by approximately $40 million. 
36. The ISP transaction represented 10.4% 
ofVitesse's 2001 reported revenue of 
$384 million:, and 108% ofits reported fourth quarter 2001 revenue of$37 million. The 
additionalrevenue provided 
by the ISP alsoaJJ~wed Vitesse to record $34 million in old 
. i~ 
-
unrecorded credits in.the fourth quarter of2001. The fraud related to unrecorded credits is fully 
alleged in 
~~ 42-46. 
b.	 The 2002 through 2006 Quarterly Stocking Packages 
With Nu Horizons 
37. Near the.end ofeach quarter, beginning on or about December 2002~ Vitesse 
routinely shipped large amounts 
ofinventory to Nu Horizons. As the close ofeach quarter 
13
 

approached, Tomasetta and Hovanec directed Vitesse employees to ship product to Nu Horizons 
in order to close the gap between Tomasetta's internally forecasted revenue target and Vitesse's 
actual quarterly revenue. During weekly revenue meetings, Tomasetta and Hovanec instructed 
members 
ofthesales staffto maximize the amount ofinventory Vitesse shipped to Nu Horizons. 
Tomasetta, Hovanec, Mody, Kaplan and others then discussed in smaller, closed-door meetings, 
specific product shipments to Nu Horizons that would 
be made in order to close the revenue gap 
identified 
by Tomasetta and Hovanec. The defendants sometimes referred to these quarterly 
shipments as quarterly stocking packages ("QSPs"). 
38.. At the outset ofthe QSPs, it was common practice to include a side letter that 
gave Nu Horizon's an ''unfettered right" to return all inventory within six months ofthe date of 
the QSP. 
39. Beginning in 2004, Vitesse and 
Nu Horizons ceased documenting this return 
arrangement with side letters. Instead, Vitesse and 
Nu Horizons relied on "handshake" 
agreements between Hovanec and a 
Nu Horizons executive: This change corresponded with 
Hovanec's increased involvement in the negotiation 
ofthe QSPs. Beginning at least as early as 
2004, Hovanec made quarterly visits to 
Nu Horizons in order to negotiate the QSPs,which often 
occurred in New York City. In total, Vitesse entered into QSPs with Nu Horizons for 15 of16 
quarters between March 2002 and March 
200Q~ A summary ofthe QSPs appears in the 
i~ . 
following table. 
Month 
Vitesse 
Quarter 
Mar 2002 2Q02 
Mar 2003 2Q03 
Stocking Package
 
Amount
 
$ 942,464 
$ 
871,645 
Reported·Quarterly 
.  Revenue 
Stocking 
Package as % 
ofReported 
Revenue 
% ofStocking 
Package Inventory 
Ultimately 
Returned to Vitesse 
$42,089,000 
2.2% 
0% 
$40,172,000 
2.2% 
0% 
14
 

Iun 2003 3Q03 $ 6,608,657 $39,738,000 
16~6% 10% 
Sept2003 
4Q03 $ 3,578,832 
$38,249,000 
9.4% 5% 
Dec 2003 1Q04 $ 7,613,422 $50,312,000 
15.1% 12% 
Mar 2004 
2004 
$ 9,176,108 
$56,034,000 
16.4% 12% 
Iun 2004 
3Q04 
$22,503,570 $60,417,000 
37.3% 45% 
Sep 2004 4Q04 $21;509,965 $52,012,000 
41.4% 
44% 
Dec 2004 1Q05 $16,958,239 
$44,459,000 
38.1% 25% 
Mar 2005 
2Q05 
$17,075,076 $47,158,000 
36.2% 10% 
Iun 2005 
3Q05 
$16,038,692 $50,971,000 
31.5% 9% 
Sep 2005 
4005. 
$17,021,809 
$48,190,000 
35.3% 12% 
.  Dec 2005 
1Q06 
$14,487,474 $53,011,000 
27.3% 
8% 
Mar 2006 2Q06 $21,247,217 No filing made 
----­
13% 
40. The target amount for each QSP was first deterrilined by Hovanec and then 
discussed with Tomasetta. After that the final dollar amount was communicated to Kaplan who 
worked 
on assembling the necessary inventory mix for the QSP to match its dollar amount. 
Often times, Vitesse, through Hovanec, Kaplan, and top sales managers, pressured 
Nu Horizons 
into taking product that 
it neither wanted nor thought it could sell. 
41. TOmaSetta, Hovanec, Mody, and Kaplan knew that immediately recognizing 
revenue from the ISP and the QSPs violated GAAP because 
ofNu Horizons' unconditional right 
oS-.' '.':' 
to retum an ofthe product contained in the lS~ 'and QSPs to Vitesse. 
3. Vitesse's Failure to Record Credits for Returned Product 
.. 
.. . 
42. From 2001 to 2006, Tomasetta, Hovanec, Mody, and KaplaIi routinely instructed 
salesandfinance 
staffto·delayrecordingcredits onreturnedVitesseproduct. BothTomasetta 
and Hovanec knew that this delay 
in timely recording credits would cause revenue to be 
overstated. 
15 

43. Tomasetta instructed the finance staffto take fewer credits each quarter. Both he 
knew that this practice would result in revenue being inflated. In addition, Tomasetta and 
Hovanec agreed to ''bleed-out'' credits over time instead ofrecording credits in the proper 
periods.. Both Tomasetta and Hovanec knew this violated GAAP. 
44. In 
or~er for a customer to return,product to Vitesse, the Company had to first 
issue a Return Merchandise Authorization number ("RMA") to the customer. The customer 
was 
instructed to use the RMA when shipping product back to Vitesse; the RMA number was used 
by Vitesse to identify the corresponding customer credit. Vitesse's finance department needed to 
keeptrack 
ofthelargequantity ofreturns,butTomasettaand Hovanecdidnotwantthereturns 
recorded in the Company's geIieralle<lger. Outside the Company's normal accounting system, 
the finance department maintained an Excel spreadsheet ofunrecorded credits organized by 
RMA. Tomasetta, Hovanec, Mody, and Kaplan knew ofthe existence ofthe Excel spreadsheet. 
The Auditor, however, did not have access to this Excel spreadsheet during its audit field work. 
45. The balance ofunrecorded customer credits was discussed during revenue 
meetings. Tomasetta and Hovanec did not allow any 
ofthe finance staffto record credits in the, 
ordinary course ofthe Company's business. Instead, the recordation ofcredits waS considered 
~ exceptional event that required approval by TQmasetta, Hovanec Qr Mody.. Tomasetta's 
message during revenlie meetings was to 
alwC}y~.''.avoidtaking the negative;" in other words, 
.1 . 
-
avoid recording credits in the current quarter and instead push the recording ofcredits offuntil a 
later period. 
46. For example, Tomasetta and Hovanec agreed to accept large returns from Nu 
Horizons on or about September or October 2004. At about that time, Hovanec directed a 
Vitesse employee to obtain blank 
RMA forms which later became RMA numbers 10001 and 
16
 

10002. In the first and second quarters offiscal year 2005, Nu Horizons returned a total of$21.8 
million in product to Vitesse. These returns were authorized by Hovanec on out-of-sequence 
RMAs numbered 10001,  10002, and 10003. The defendants failed to record these credits 
in the 
periods that 
Nu Horizons returned the product as summarized below. 
Quarter 
RMA 10001 RMA 10002 RMA 10003 
Amount 
Returned 
Amount 
Credited 
Amount 
Returned 
Amount 
Credited 
Amount 
Returned 
Amount 
Credited 
lQ05 $5~000,000 
$2,940,000 $7,000,000 
2Q05 $668,917 $2,013,043 $11,800,000 $399,462 
3Q05 $1,187,800 $732,830 
4Q05 $12,015 $192,701 $50,833 
lQ06 
$811,417 
2Q06 $283,640 $114,974 
3Q06 $2,461,256 
$5,602,435 
Total 
$5,000,000 $4,808,732 
$7,000,000 $5,683,470 $11,800,000. 
$6,979,121 
After the defendants were either terminated 
or had resigned by May 2006, Vitesse's new 
management directed that all previously unrecorded credits 
be recorded, including the credits 
above in 3Q06. The Company's failure to timely record these credits resulted in a material 
overstatement 
ofrevenue and accounts receivable in the corresponding periods. 
4. Vitesse Misapplied Cash Receipts to Hide the Age of 
Its Invalid Accounts Receivable 
47. As a result ofits failure to timely record customer credits, Vitesse's accounts 
receivable balances grew and aged. In order 
fo; Vitesse to·:hide its improper revenue recognition 
practices related to the ISP and QSPs from its Auditor, Vitesse needed cash to conceal the true 
age 
ofits old accounts receivable balances. 
48. In order to conceal the aged balances 
ofNu Horizons' invalid accounts receivable 
from the Auditor during its field work, Hovanec and Kaplan routinely instructed lower-level 
finance employees to improperly post cash receipts from other customers to the oldest 
ofNu 
Horizons' accounts receivable. After the Auditor's field work was completed, Kaplan instructed 
17
 

the lower-level fimmce staffto reverse these entries and apply the cash to the proper customers' 
accounts receivable balances. Both Hovanec and Kaplan knew this violated GAAP. 
49. This practice 
ofmisapplying cash receipts grew dramatically in scale when, in 
. later periods, Hovanec solicited large cash payments from 
Nu Horizons at quarter-end. As part 
ofhis quarter-end trips to negotiate the QSPs, Hovanec also requested large cash pre~payments 
from Nu Horizons. 
50. At times, the cash prepayment solicited by Hovanec was equal to or greater than 
the simultaneously negotiated QSP. For example, 
in Vitesse's second quarter of2003, Nu 
Horizons made a $7 million prepayment to Vitesse at the same time it provided an $871,000 
QSP to 
Nu Horizons. The prepayments from Nu Horizons continued for each ofVitesse's 
quartersfromMarch2003throughMarch2006; Theprepaymentsrangedfroma low of$2 
million to a high 
of$16 million. The prepayments ranged from 11.8% to 803% ofthe dollar 
amount 
ofthe QSPs. The average dollar amount ofthe quarterly lump sum cash payments was 
over $7 million. 
51. Upon 
his return from Nu Horizons, Hovanec, and at times Kaplan, instructed the 
lower-levelfinance staffto postthecashpaymentto 
theoldestand largest ofNuHorizons' 
outstanding invoices~ After completion ofthe Auditor's field work, the lower-level finance staff 
was instructed to reverse the entries. 
-
52. As a result ofthe numerous discounts, returns, and side deals between Vitesse and 
Nu Horizons, the amounts due to Vitesse from Nu Horizons were difficult to reconcile. For 
example, on September 15, 2005, at the request ofthe A.uditor, Vitesse sent four letters to Nu 
Horizons asking it to confinn that 39 specific invoices listed as outstanding in Vitesse's records 
were,in fact, outstanding. The 39 invoices totaled more than $7.6 million and were dated 
18
 

between February 2005 and September 2005. Nu Horizons' records, however, indicated that all 
39 invoices were no longer outstanding. 
53. 
In September or October 2005, Nu Horizons told Kaplan in a phone conversation 
that it would not confirm these invoices as outstanding because they were indeed not 
outstanding. At Kaplan's request, however, 
Nu Horizons agreed not to return the confirmation 
letters 
to the Auditor. In its 2005 Form 10-K, Vitessereported $30.4 million ofaccounts. 
receivable at September 30,2005. The $7.6 million ofthe Nu Horizons invoices represent more 
.. 
than 25% ofVitesse's reported accounts receivable balance. 
B. THE FRAUDULENT MANIPULATION OF STOCK OPTION GRANT DATES 
1. The Relevant Vitesse Stock Option Plans and Disclosures 
54. Vitesse regularly granted stock options to employees, including officers, under 
three shareholder approved plans, the 1989 Stock Option Plan, the 
1991 Stock Option Plan and 
the 2001 Stock Incentive Plan (collectively, the "Option Plans"), which were generally effective 
in consecutive 10 year periods. With the exception 
ofnon-statutory options granted under the 
200lai1d 1989 Plans, these plans required that Vitesse grant 
all options with exercise prices at no 
less than 100% 
ofthe fair market value ofthe Company's stock on the "date ofgrant," which the 
.... .. .. 
1991 and 2001 plans define as ''th~ date on which the Administrator makes the determination 
granting such Option, or such other later date.~ is determined by the Administrator."  The 1989 
. ;~. 
Planprovides that the "date ofgrant" is ''thedateon which the Board makes the determination 
granting such Option." For non-statutory options awarded under the 2001 Plan, the plan 
provided that the exercise price is determined 
by the plan's Administrat-or, which was in practice 
. the Compensation Committee ofVitesse's Board ofDirectors. For non-statutory options 
19
 

awarded under the 1989 Plan, the plan provided that the exercise price could not be less than 
85% 
ofthe fair market value ofthe stock on the date ofgrant. 
,55. Vitesse disclosed in every annual report on Form 10-K for its fiscal years 1996 
through 2005 that under the Option Plans the exercise price 
ofall stock options must be at least 
equal to the fair market value ofVitesse's common stock on the date 
ofgrant. Thus, Vitesse 
cOnsistentlydisclosed 
to investors thatthe Option Plans prohibitedthe grant ofin-the-money 
options. 
56. Additionally, Vitesse's annual reports 
on Form lO-K for its fiscal years ended . 
September 30,2002 through September 30,2005 affirmatively stated, in substantially similar 
terms that, other than certain grants made in connection with certain companies Vitesse acquired, 
all option grants made by Vitesse to employees were granted 
at the fair market value at the time 
ofgrant. Vitesse's quarterly reports on Form 10-Q filed from May 2004 to February 2006 . 
similarly stated thattheCompany did not grant in-the-moneyoptions. 
2. Accounting for Employee Stock Options and Vitesse's Disclosures 
57. During the period descnbed herein, GAAP, and in particular Accounting 
Principles Board Opinion No. 25, Accountingfor Stock Issued 
to Employees ("APB 25"), did not 
require a company to record any compensation expense for employee stock options so long 
as 
the option exercise price was set: at the quot,¢+market price ofthe company's stock on the date 
" '. -",­
ofthe grant (i.e., an "at-the-money" option), or above the quoted market price ofthe company's 
stock on the date 
ofthe grant (i.e., an "out-of-the-money" option). 
58. Under APB 25, an employee option granted with an exercise price lower than the 
quotedmarket 
priceofthecompany'sstockonthedate ofgrant(i.e.,an"in-the-money" option) 
has "intrinsic value." The "intrinsic value" 
ofa fixed stock option is the difference between the 
20
 

exercise price and the quoted market price ofthe company's stock onthe date ofgrantorthe 
"measurement date." During the period describedherein, employers were required to record 
as 
an expense on their financial statements the "intrinsic value" of a fixed stock option on its 
"measurement date." The measurement date, as defined 
by APB 25, is the first date on which 
the following information is  known: 
(i) the number ofoptions that an individual is entitled to 
receive, and 
(ii) the exercise price. Under APB 25, the intrinsic value ofa fixed stock option 
must be recognized over the vesting period 
ofthe option. Options that are at-the-money or out­
of-the-money 
on their grant or measurement date have no intrinsic value and therefore need not 
be expensed. 
59. Beginning 
on December 15, 1998 and continuing through the period described 
herein, FASB Interpretation No. 44, 
Accountingfor Certain Transactions Involving Stock 
Compensation. an Interpretation 
ofAPB Opinion No. 25 ("FIN 44"), requiTed the application of 
variable accounting under APB 25 when an employee's stock option is repriced unless asix­
month waiting period requirement is met. Variable accounting requires that compensation 
expenses be adjusted from period to period, based on variations in the market price 
ofthe 
company's stock as compared to the exercise price ofthe option grant. 
60. Vitesse's Forms 10-K for fiscal years ended September 30, 1996 through 
September 30, 2005 stated that the Company 
p.r~ared its financial statements in accordance with 
. .!. -~ . 
GAAP, and that Vitesse accounted· for stock option grants in accordance with APB 25. Vitesse 
al~o disclosed in its Forms 10-K for fiscal years 2000 through 2005 that it  complied with FIN 44. 
Vitesse's Forms lO-Q filed from May 2003 to February 2006 also state that the Company 
applied, 
or accounted for stock option grants in accordance with, APB 25. 
21
 

3. The Stock Option Granting Process at Vitesse 
61. Vitesse regularly granted options to employees and officers at the time they were 
hired and 
on an annual ("evergreen") basis. Vitesse periodically granted other types ofoptions 
aswell, such as perfonnance and retention awards. Vitesse's Compensation Committee. 
comprised 
ofindependent directors approved all option grants that Vitesse awarded. The 
Committee typically granted options at  in-person meetings following regularly scheduled Board 
meetings, and at times granted options during telephonic meetings 
or by unanimous written 
consent. 
62. Tomasetta approved all grant proposals before he recommended them to the 
Compensation Committee. After Tomasetta approved the proposed recipients and number 
of 
options, Tomasetta, Hovanec and Mody's administrative assistant -- who also serVed as the 
Company's de facto stock option administrator 
(the "Assistant") -- typically provided a schedule 
ofthese options to the Compensation Committee in advance ofthe Committee's meetings. 
Schedules provided to the Committee generally did not include a recommend date 
or exercise 
price, though proposals for new hires at  times identified the employees start date as the intended 
grant date. 
63. Tomasetta 
an9 Hovanec attended Compensation Committee meetings and
 
presented the option proposals to the 
Commit~~~, and the Committee typically considered and
 
l-~ 
approved grants in their presence without modification. Vitesse's Compensation Committee did 
not discuss option exercise prices. Compensation Committee members intended and believed 
that, with the exception 
ofnew hire grants, the grant dates for all options they approved were the 
.  dates 
ofthe meetings where they approved the options, and that the exercise price ofthe options 
would 
be the close ofVitesse's stock on the approval dates. For new hires, Compensation 
22
 

Committeemembersbelievedthattheexercisepricewasset at theclosingprice ofthe 
Company's stock on either the date ofthe Committee's approval or the employee's start date. 
64. Sometime after the Committee approved a set 
ofgrants, the Assistant entered 
the options into the Company's electronic stock options database (Equity Edge) based 
on the 
approved option grant schedule (which included optionee names and option numbers),.and a 
grant date and exercise price provided 
by Tomasetta or Hovanec. TheSe lists at times included 
options and recipients that Tomasetta had authorized but that the Committee had not previously 
granted
.. The Assistant then printed a ''Notice ofStock Options and Option Agreement" ("Grant 
Notices") for each individual grant, and asked Hovanec 
or Tomasetta to sign them on behalfof 
Vitesse. After the Grant NoticeS were signed, the Assistant forwarded them to Company 
supervisors to distribute to employees. 
. 4. The Stock Option Backdating Scheme 
65. Between 1995 and 2005, Tomasetta and Hovanec regularly disregarded the dates 
the Compensation Committee approved stock option grants and routinely used hindsight to select 
grant dates based 
on low points in the price ofVitesse's stock. At times, Tomasetta and 
Hovanec sought the Assistant's support in identifying low prices, such as 
by directing the 
Assistant to print a list or chart ofVitesse's .stock prices covering a one to three month period. 
Tomasetta 
or Hovanec would then choose a lq,¥ price or ask the Assistant to identify the low 
. i~ 
poce. 
66. Selection offavorable exercise prices occurred at different times relative to the 
CompensationCommittee'sapproval 
ofthegrant. Insomecases,Tomasettaand/orHovanec 
chose a favorable price 
by looking back days, weeks or months at or around the date ofthe 
Committee's approval. 
At other times, they waited to see ifthe stock price would decline further 
23
 

after the Committee's approval before retroactively selecting the price. In still other instances, 
when Vitesse's stock price continued to decline in the weeks 
or months after Tomasetta and/or 
Hovanec had selected a price, they used hindsight to regrant 
or "reprice" the options. Certain 
options were repriced multiple times, with Tomasetta and/or Hovanec using hindsight to select 
each new price. 
67. Through the backdating, Tomasetta and Hovanec caused Vitesse to falsify its 
books and records to reflect the chosen date as the purported grant date instead 
ofthe date the 
options were actually approved 
by the Compensation Committee~ After Tomasetta and/or 
Hovanec chose a low price for the options, they instructed the Assistant to record the price and 
corresponding "grant date" in Equity Edge. 
In connection with some ofthe grants that 
Tomasetta and/or Hovanec repriced, Tomasetta and/or Hovanec 
at times instructedthe Assistant 
to delete the original grant date entries from Equity Edge and to shred all documents associated 
with the original grants. They also instructed the Assistant to record the selected price and 
"grant date" in the Compensation Committee meeting minutes that the Assistant prepared from 
Hovanec's handwritten notes. Hovanec signed the final version 
ofthe Compensation Committee 
minutes 
as Secretary for each meeting. 
68. For approximately fifteen 
ofthe backdated options, the Committee minutes are 
backdated 
or misdated on their face, meaningJ~Uhe correct meeting date is included in the title 
... 
and first paragraph, but later in the text or on the attached sched,ules the minutes disclose the 
false grant date that Tomasetta and/or Hovanec had selected. 
In additioll; the Grant Notices 
given to employees reflect the chosen date and price as the grant date and exercise price for the 
options. 
24
 

69. As a result ofTomasetla and Hovanec's actions, Vitesse backdated the grant dates 
for at least 40 option grants during 1995 through 2005. Nearly every annual evergreen grant to 
the Company's employees and officers was backdated. Grants to new hires were backdated, on 
occasion, to dates before Vitesse had even hired the employee. One-offgrants to employees 
were also backdated. In total, and as set forth in the charts below, Vitesse backdated or repriced 
a total 
of6,953 individual option grants with 43 fraudulent grant dates covering approximately 
49 million options. 
70. In the charts 
below~ the "Revised Grant Date" represents the revised measurement 
date that Vitesse recorded in its Stock Options Restatement. 
Backdaet dE
vergreen Grants 
Purported 
Grant Date 
Revised 
Grant 
Date 
.Exercise 
Price 
Exercise 
Price 
on 
Revised 
Grant Date 
Difference 
in Share 
Price 
Tota'Shares 
Granted 
1/27/1995 4/19/1995 $4.50 
$4.56 $0.06 
400,500 
1/23/1996 9/17/1996 
$11~25 
$41.12 $29.87 
275,000 
3/19/1997 
4/15/1997 $22.50 $30.50 $8.00 913,700 
1/1/1998 4/21/1998 $37.75 $56.63 $18.88 
1,280,600 
10/5/1998 
1/26/1999 $18.06 $48.75 $30.69 
2,112,050 
4/6/2001 
7/1212001 $17.44 $18.85 $1.41 
5,668.900 
10/212001 
12/17/2003 
10/20/2003 
10/27/2004 
1/29/2002 
4/17/2004 
10/16/03; 
repriced 
on 
1/26/2004 
1/24/2005 
$7.27 
$5.69 
$6.97. 
$2.58 
;j. 
~ .., 
.­
$12.46 
. $5.77 
$7.32 
repriced 
·$8.74 
$3.1'"8 
.-.' 
$5.19 
$0.08 
$0.35 
$1.77 
$0.60 
6,952,450 
4,204,500 
1,600,000 
10,821,100 
Total 
34,228,800 
-Backdated New Hire Grants 
Purported 
Grant Date 
Revised 
Grant-Date 
Exercise 
Price 
Exercise 
Price 
on 
Revised 
Grant Date 
Difference 
in Share 
Price 
Total Shares 
Granted 
2/24/1997 
3/31/1997 
4/21/1997 
4/15/1997 
4/15/1997 
7/19/1997 
$28.91 
$27.62 
$27.75 
$30.50 
$30.50 
$41.00 
$1.59 
$2.88 
$13.25 
96,750 
12,500 
4,000 
25
 

10/5/1998 1011711998 
$18,06 
$28.44 
$10.38 
18,500 
10/1/1998 $20.44 $48.75 
$28.31 12,500 
11/2/1998 
12/1/1998 
1/26/1999 
$33.00 
$35~75 
$48.75 
$48.75 
$15.75 
$13.00 
111,000 
11,000 
1/4/1999 $44.31 $48.75 
$4.44 
135;500 
4/18/2000 $62.56 
$11.93, 
4/24/2000 
repriced on 
$50.63 
repriced 
125;200 
7/18/2000 $73.56 
$22.93 
4/24/2000 7/18/2000 $50.63 $73.56 
$22.93 
28,200 
5/10/2000 
7/18/2000 
9/21/2000 
$45.75 
$73.56 
$86.00 
$27.81 
$40.25 
74,100 
10,000 
5/23/2000 7/18/2000 $41.38 
$73.56 $32.18 25,000 
6/1/2000 
7/18/2000 
9/21/2000 
$56.50 
$73.56 
$86.00 
$17.06 
$29.50 
28,300· 
300,000 
6/30/2000 7/18/2000 $73.56 
$73.56 
$0.00 
61,500 
7/5/2000 
7/18/2000 
9/21/2000 
$69.25 
$73.56 
$86.00 
$4.31 
$16.75 
27,700 
3,100 
7/28/2000 9/21/2000 $56.56 
$86.00 $29.44 
300 
7/5/2000 $69.25 
$86.00 $16.75 100 
7/28/20bo $56.56 $86.00 
$29.44 
21,100 
8/3/2000 
8/16/2000 
9/21/2000 
$54.81 
$77.94 
$86.00 
$86.00 
$31.19 
$8.06 
152,400 
25,600 
9/12/2000 $78.75 
$86.00 
$725 43,600 
9118/2000 $80.19 
$86.00 
$5~81 14,000 
2113/2001 7/12/2001 $20.00 
$18.85. 
.($1.15) 
39,088 
1/23/2001 $75.88 
$58.44 
4/6/2001 
repriced on 
$17.44 
repriced 
134,200 
4/12/2001 $25.70 
$8.26 
4/6/2001 
·4/12/2001 
$17.44 $25.70 
$8.26 
560,150 
7/10/2001 7/12/2001 $15.78 
$18.85 $3.07 
589,700 
9/20/2001 $8.92 
$1.65 
10/2/2001 
repriced on 
10/25/2001 
$7.27 
repriced 
$11.35 
$4.08 
311,700 
10/25/2001 $7.27 
$11.35 
.  $4.08 
183,300 
10/30/2001 
11/212001 
1/29/2002 
1/29/2002 
$8.84 
$9.98 
.i~ 
~ 
$12.46 
>$12,~6 
t._:. 
$3.62 
$2.48 . 
2,000 
90,900 
12/312001 1/29/2002 $11.11 
.. 
-
$12.46 
$1.35 168,400 
1/23/2002 
1/29/2002 
4/18/2002 
$11.62 
$11.62 
$12,46 
$7.94 
$0.84 
($3.68) 
93,900 
38,200 
4/18/2002 $7.94 
$3.32 
5/6/2002 
repriced on 
$4.62 
repriced. 
219,500 
7/18/2002 
$3.18 
($1.44) 
7/18/2002 $3.18 
$1.92 
8/15/2002 
repriced on 
$1.26 
repriced 
178,800 
9/19/2002 $0.99 ($0.27) 
Total 
3,951,788 
26
 

Backdated Other Grants 
Purported 
Grant Date 
Revised 
Grant 
Date 
Exercise 
Price 
$10.75 
$22.50 
9/13/1995 9/14/1995 
3/19/1997 4/15/1997 
1/1/1998 4/21/1998 
$37.75 
$26.75 
$18.06 
$45.63 
$52.63 
$46.63 
$50.63 
$80.19 
$17.44 
$15.78 
$7.27 
$7.27 
$7.27 
$8.84 
$9.98 
$11.11 
$11.62 
$7.36 
, 
.. 
$4.62 
$1.26 
$2.18 
$5.69 
5/14/1998 7/14/1998 
10/5/1998 1/26/1999 
1/1/1999 
5/24/1999 
7/20/1999 
1/26/2000 4/18/2000 
4/24/2000 7/18/2000 
9/18/2000 9/21/2000 
4/6/2001 
7/1212001 
7/10/2001 
7/12/2001 
10/2/2001 
10/25/2001 
1/29/2002 
4/18/2002 
10/30/2001 
11/2/2001 
12/3/2001 
1/23/2002 
1/29/2002 
1/29/2002 
·1/29/2002 
1/29/2002 
4/2212002 
4/16/2002 
repriced on 
7/18/2002 
5/6/2002 
4/18/2002 
repriced on 
7/18/2002 
8/15/2002 
7/18/2002 
repriced 
on 
9/19/2002 
4/1/2003 4/17/2003 
12/17/2003 4/17/2004 
Exercise
 
Price on
 
Revised
 
Grant Date
 
$11.25 
$30.50 
$56.62 
$33.75 
$48.75 
$59.25 
$59.25 
. 
$62.56 
.. 
$73.56 
$86.00 
. $18.85 
$18.85 
$11.35 
$12.46 
$7.94 
$12.46 
$12.46 
$12.46 
$12.46 
$7.94 
reprieed 
;i. • $3.18 '.: 
$7.94 
-
repriced 
$3.18 
$3.18 
repriced 
$0.99 
$2.40 
$5.77 
Difference 
in Share 
Price 
Total Shares 
Granted 
$0.50 
75,000 
$8.00 
136,500 
$18.87 
2,000 
$7.00 
6,000 
$30.69 
40,000 
$13.62 
1,000 
$6.62 
139,000 
$15.93 
19,100 
$22.93 
34,000 
$5.81 
1,500 
$1.41 
1,273,644 
$3.07 
609,591 
$4;08 230,876 
$5.19 
7,438,741 
$0.67 
195,000 
$3.62 
2,950 
$2.48 
5,350 
$1.35 
3,500 
$0.84 
6,350 
$0.58 
125 
($4.18) 
$3.32 
24,400 
($1.44) 
$1.92 
7,475 
($0.27) 
$0.22 
15,000 
$0.08 
72,500 
27
 

10/27/2004 
1/24/2005 I 
$2.58 
I 
$3.18 
I 
$0.60 
226,000 
Total 
10,565,602 
71. Vitesse, through the knowing or reckless actions ofTomasetta and Hovanec, 
failed to record compensation expense for any 
ofthese options in the financial statements it filed . 
with the Commission in annual, quarterly, and other reports during the fiscal years ended 
September 30, 1996 through the first quarter of2006, which ended December 31,2005. These 
unrecorded expenses, which are contained within the Stock Options Restatement included in 
Vitesse's Form 10-K filed in September 2008, overstated Vitesse's annual pretax income 
or 
understated it annual pretax Joss by between approximately 1.7% and 45.7% during the fiscal 
years 1996 
to 2005, as identified in the chart below. 
Fiscal 
Year 
Approximate 
Unrecorded 
StockComp 
Expense 
.Previously 
Reported Pretax 
Income (Loss) 
Approximate 
Unrecorded Stock Comp 
as 
% of Pretax Results 
1996 
$ 
233,791 
$ 14,050,000 
1.7 % 
1997 
$ 4,708,512 
$ 36,540,000 
12.9% 
1998 
. $  . 7,349,285 
$ 65,951,000 11.1 % 
1999 
$ 23,393,202 
$103,890,000 
22.5% 
2000 
$ 22,489,536 
$ 81,678,000 27.5% 
2001 
$ 28,723,399 
($159,062,000) 
18.1 % 
2002 
$ 46,047,137 
($823,719,000) 
5.6% 
2003 
$ 24,625,010 
($131,179,000) 
18.8 % 
2004 
$ 15,362,456 
($33;;613,000) 
'-'~ 
45.7% 
2005 
$ 11,293,558 
($ 
12
9,811,000) . 
8.9% 
Total 
$184,225,887 
-­
-­
5.	 Tomasetta and Hovanec Knew or Recklessly Disregarded
 
The Pricing Requirements of the Option Plans and the
 
Applicable Stock Option Accounting Rules
 
72.. Tomasetta and Hovanec knew or were reckless in not knowing that Vitesse's 
shareholder-approved Option Plans prevented in-the-money grants for most options during the 
period from 1995 to 2005. Tomasetta reviewed, signed, and in certain years certified Vitesse's 
28
 

fiscal 1996 - 2005 Fonus 10-K, and Hovanec reviewed, signed, and in certain years certified 
Vitesse's 1996 -  2004 Fonus 10-K, containing the above identified disclosures that the Option 
Plans prohibited the grant 
ofin-the-money options and/or that all option grants made by Vitesse 
to employees were granted at the fair market value at the time 
ofgrant. Tomasetta also reviewed 
and certified the above identified Fonus 10-Q filed from May 2004 to February 2006 that stated 
Vitesse did not grant in-the-money options, and Hovanec reviewed, signed, and certified the 
Forms 10-Q filed from May 2004 to February 2005. 
.  73. Inaddition, during their attempt to cover-up certain 
oftheir stock option 
backdating misconduct during late 2005 to April 2006 following media inquiries ofpossible 
backdating at the Company (discussed below in 
~~ 112-118), they told Vitesse directors in early 
2006 that the Companyhistoricallypriced options at the market value 
ofthe stock on the date the 
Compensation Committee approved the grants. 
74. 
Tomas,~tta and Hovanec also knew or recklessly disregarded the accounting rules 
governing in-the-money and repriced option grants. Both 
ofthem reviewed, signed, and in 
certain years certified the above identified Fonus lO-K that stated Vitesse prepared its financial 
statements in accordance with GAAP and' accounted for stock option grants in accordance with 
APB 25 and FIN 44. They also reviewed, signed, and certified various VitesseFonus 10-Q filed 
from May 2003 through fiscal 2005 that 
cont$ similar disclosures.' Further, they reviewed and 
. I~ ...... 
." 
signed various management representation letters provided to the Company's Auditor (identified 
below in 
W156-158) that stated that stock option grants were accounted for in accordarice with 
APB 25. 
29
 

75. Hovanec, as a  Certified Public Accountant, was trained in accounting, worked as 
.
an auditor for five years (1972 to 1976) at Arthur Andersen rising to the level 0 f senior 
accountant, and served 
in various accounting positions at other public companies. 
76. 
Tomasetta and Hovanec knew the accounting ramifications ofgranting in-the­
money options at least as early as April 1999. In mid-1999 Vitesse acquired a software company 
called XaQti. 
To induce XaQti to agree to the acquisition, Tomasetta and Hovanec agreed to 
grant in-the-money options 
to certain XaQti employees after they joined Vitesse. In connection 
with these grants, Mody explained to Tomasetta and Hovanec that when the exercise price ofan 
option is less 
than the fair market value ofthe underlying stock on the date ofgrant, a registrant 
must expense 
the difference between the exercise price and the grant date fair market value. 
Mody informed Tomasetta and Hovanec that Vitesse would have to expense the in-the-money 
portion ofthe options (approximately $5 million) over the life ofthe options, as long as the 
employees remained with Vitesse. Consistent with Mody's statements, Vitesse recorded 
compensation expense for these options 
in its Forms 10-K for the fiscal years 2000 through 
2002, 
which Tomasetta and Hovanec reviewed and signed. 
77. 
In addition, in late 2005 during Tomasetta's and Hovanec's attempt to cover-up 
certain 
oftheir backdating, the law firm that serVed as Vitesse's long-time outside counsel 
("Outside Counsel") reminded Tomasetta anq.ijovanec about 
the accounting ramifications of 
;. 
.. 
granting ,in-the-money options. In this same period, Mody also represented to the Audit 
Committee 
ofVitesse's Board ofDirectors and Vitesse's Auditor, at an Audit Committee 
meeting 
which Tomasetta and Hovanec attended; thatVitesse had properly accounted for prior 
. option grants'in accordance 
with APB 25. Days later, Vitesse filed its 2005 10-K that Tomasetta 
30
 

reviewed, signed, and certified, but which failed to record compensation expenses generated by 
Tomasetta and Hovanec's backdating. 
78. 
By at least July 2002, Tomasetta and Hovanec also knew ofthe accounting and 
disclosure requirements for repriced options. Around this time underwater options were 
depressing morale at Vitesse and the Company sought advice from its Outside Counsel about 
how to reestablish the value 
ofthese options. Outside Counsel advised Vitessemanagement, 
including through slides sent to Hovanec that Outside Counsel prepared for a Board presentation, 
and via conference calls with Hovanec, that ifVitesse repriced existing options then the revised 
options would 
be subject to variable accounting. Reissuing new options six months and one day 
after the originals had been canceled, however, would not require such accounting. Outside· 
Counsel further explained that shareholders disfavor repricings because they incur real losses 
when the price 
oftheir own stock declines but receive no special treatment, and further that 
repriced grants to named executives in the Company's proxy statements must be disclosed. 
79. This infonnation was communicated to Tomasetta and both he and Hovanec 
explained to Vitesse's board ofdiiectors the consequences 
ofrepricing or canceling options. 
Also, at a July 18, 2002 Compensation Committee meeting that OutSide Counsel participated in 
by phone, Tomasetta discussed with the Committee two different proposals for dealing with 
underwater options. Vitesse ultimately 
disclo.~~ in its 2002 proxy statement that the Committee 
. /".. 
had declined to cancel underwater options previously granted to Tomasetta and other executives, 
and reissue new ones, because the new options would be subject to variable accounting. This 
decision was made jointly with Tomasetta and Hovanec. 
31
 

5~ Examples of Tomasetta's and Hovanec's Options Backdating 
a. July 10, 2001 New Hire and Other Grants 
80. Vitesse'sJuly 10, 2001 grantofl,199,291 options to 141 new hires and certain 
current employees was backdated 
by two days. On July 12, 2001, Tomasetta and Hovanec 
attended a Compensation Connnittee meeting where the Committee approved the options. The 
stock closed that day at $18.85. 
On or about this date, Hovanec looked back to select a low price 
for the options. A stock price chart from the Assistant's files dated July 11, 2001lists Vitesse's 
stock price from June 
15 to July 11. The price next to the July IOdate, which is  the lowest price 
on the chart, is circled and next to it Hovanec wrote, "[Assistant] stock price Gene." The 
Compensation Committee meeting minutes documenting this grant are backdated, stating that the 
exercise price shall be 100% 
ofthe fair market value ofthe stock on July 10, 2001. 
81. Based 
on the closing price ofVitesse's stock on July 10 ($15.78), these options . 
were in-the-moneyon a per share basis 
by $3.07, and in the aggregate by approximately $3.7 
million. Hovanec signed the meeting minutes documenting the grant, and towards the end 
of 
July through September, both he and Tomasetta signed the corresponding Grant Notices which 
contained 
the false grant date. In its Stock Options Restatement, Vitesse revised the 
measurement date for these options to July 12, 2001. 
b.May 6, 2002 New Hir.e.nd Other-Options 
. '.)" . -~ 
82; Vitesse's May 6, 2002 grant of244,025 options to 50 new hires and certain . 
current employees was backdated and then repriced as Vitesse's stock price declined. On April 
18, 2002, Tomasetta and Hovanec attended a Compensation Committee meeting where the 
Committee granted the options. 
In the following weeks, Tomasetta and Hovanec twice 
manipulated the grant date for these options 
32 

83. Hovanec first selected April 22, 2002 as the grant date. On a stock price chart 
•listing Vitesse'
~ stock prices from January 30 to April 18, the Assistant wrote, "Gene, Hire dates 
(highlighted) for new grants. Last qtr we used the low in each month. [Assistant]". Hovanec 
responded by writing on the chart, "do them as 
oftoday Gene 4/22/02 hire date vest", meaning 
that the Assistant should record April 
,22 as the grant date but use the employees' hire date to 
commence the options' vesting period. The closing price ofVitesse's stock on April 22 was the 
second to lowest closing price 
ofthe Company's stock between January 30 and April22. 
84. Hovanec and Tomasetta thereafter selected a new grant date with a lower price. 
In an email chain between the 
ASSIstant and a vice president in Vitesse's European operations, 
dated between May 8 and May 1
0, 2002, the Assistant stated: 
.. 
. The whole group ofnew hire grants approved at the April 18 Board ofDirectors 
meeting were given a grant date 
ofApril 22; option price $7.36. Then, when the 
stock price began to fall, Gene Hovanec suggested I wait 
a week or two before 
we finalized everything to send to employees. We talked about it again 
yesterday and decided to discuss with Lou 
on Friday (he's traveling Wed & 
Thur) to make sure we are going to go ahead with the April 22 grant date & 
pnce. 
85. Tomasetta ultimately instructed the Assistant to change the grant date from April 
22 to May 
6. On a stock price chart listing Vitesse's stock price from April 18 to May 8, 2002, 
the Assistant wrote, "New hires Feb,March, April change to," followed 
by an arrow pointing to 
_--:t --. 
thedate5/6/02and theprice$4.62. Thisdate.andpricearecircled,andtheAssistantwrote,"per 
Lou 
on 5-10-02(.)" The closing price ofVitesse's stock on May 6 was the lowest closing price 
oftheCompany'sstockbetweenJanuary30andMay10. Based ontheclosingpriceonMay 6, 
the exercise price for these options was $3.32 per share ($809,748 in the aggregate} lower than 
the closing price ofVitesse's stock on April 18, when the options were actually approved. 
33
 

86. On or about May 13, 2002, Hovanec signed the Grant Notices for these grants 
which contained the false May 6 grant date. 
87. The minutes documenting the Compensation Committee's April 
18 meeting are 
backdated and state that the exercise price for the options shall be 100% 
ofthe fair market value 
ofthe stock on May 6. Hovanec signed the minutes. 
88. In its Stock Options Restatement, Vitesse concluded that these options were first 
granted 
on April 18, 2002 and then repriced on July 18, 2002, the date ofthe next board meeting 
when the Compensation Committee minutes were final and signed. As a result 
ofthe repricing, 
Vitesse applied variable accounting to the options, recording approximately $89,869 in 
.compensation expense. 
c. . 
October 2, 2001 Fiscal 2002 OfficerlEmployee Evergreen Options 
89. Tomasetta and Hovanec ~anipulated Vitesse's October 2,2001 grant of 
approximately 6.9 million evergreen options to 1,057 employees and various officers on three 
separate occasions, backdating the final grant by approximately four months. In the first 
instance, it  appears that at the July 12,2001 Compensation Committee meeting, which 
Tomasetta and Hovanec attended, the Committee considered a preliminary total evergreen option 
number. 
Atthat meeting the Committee was not provided with any option grant schedules 
containing specific proposals for identified etp.ployees, and 
it did not approve the fiscal year . 
.i ... 
2002 evergreens at that time. The Assistant's handwritten notes on a summary sheet ofgrants to 
be considered at the meeting state "grant date TBD" for the employee evergreenS and certain 
other options, and the minutes 
ofthe July 12 meeting make no mention ofthe evergreens, 
Nevertheless, at Tomasetta's 
or Hovanec's direction, and using the same July 10, 2001 . 
backdated grant date that Hovanec had selected for the new hire and other options that were 
34
 

actually graIlted at this meeting (discussed above), the Assistant recorded a grant date and 
exercise price 
ofJuly 10, 2001 and $15.78 in various Company records for these evergreen 
options. 
90. As the Company's stock price declined, Tomasetta and/or Hovanec instructed the 
/ 
Assistant to change the grant date to August 21, 2001 and a price of$13.23. The Assistant typed 
draft minutes 
ofa purported August 21 telephonic meeting ofthe Compensation Committee 
where the Committee allegedly·granted the evergreens. 
In fact, no such meeting occurred, and 
these minutes were never signed. The Assistant ultimately deleted the August 
21 date and the 
corresponding price from Equity Edge at Tomasetta's and/or Hovanec's direction. 
91. Tomasetta and/or Hovanec instructed the Assistant to change the grant date and 
exercise price for the options for a third and final time to October 2,2001 and $7.27. This grant 
is  identifiedm minutes 
ofa meeting ofthe Compensation Committee held on October 25,2001, 
which Tomasetta and Hovanec attended. The minutes are backdated and state that the exercise 
price 
ofthe options shall be 100% ofthe fair market value ofthe stock on October 2,2001. 
Vitesse's Compensation Committee, however, did not meet on October 2,2001 or otherwise take 
any actions to grant the options 
on this date. 
92. The October 2 "grant" was not finalized until four months after the purported 
grant date, as evidenced 
by various'documen.!s:iind Tomasetta and Hovanec's approval. The 
. .'" .~ 
Assistant included a draft ofthe October 25 Committee minutes in the board book for the next 
board meeting, which occurred on January 29,2002; the draft contains total evergreen options 
thatdifferslightlyfromthefinal version 
oftheminutesthatHovanecsigned onorafterthatdate. 
In a January 30, 2002 inter-office memo, the vice president ofVitesse's Human Resources 
department ("HR Department") distributed ''this year's final approved evergreen stock option 
35
 

list" to various supervisors noting the October 2 "grant date" and price, and informing them that 
they "can now advise your employees" 
ofthe grant and that the Assistant will distribute the 
option paperwork 
in the next 60 days. A chart the Assistant prepared after the January 29 
Compensation Committee meeting identifies the type, vesting periods, and backdated grant dates 
for both options the Committee approved on January 29 as well as for the fiscal year 2002 
evergreen and certain other options. For the evergreen and certain other options the chart states, 
"Grant date is  10/2/01." The Assistant wrote 
on the chart, "OK'd by Lou & Gene 2-~ 1-02." 
Finally, in March 2002 Hovanec and Tomasetta signed the Grant Notices for the evergreen 
options which the Assistant then distributed to employees. 
93. The closing 
price 
ofVitesse's stock on October 2 was the second to lowest 
closing price 
ofthe Company'sstock between July 2001 and January 29, 2002; Vitesse's stock 
closed just $0.24 lower 
on September 27. 
94. In its Stock Options Restatement, Vitesse revised the measurement date for these 
options to January 29,2002. Based on the closing price 
ofthe stock on this date ($12.46), the 
options were in-the-money 
by $5.19 per share, or approximately $36 million in the aggregate. 
Tomasetta's 1.2 million options were in-the-money by approximately $6.2 million al1d 
Hovanec's 300,000 options were in-the-money by $1.5 million. 
95. 
In addition; as alleged below, 
gwmg November 2005 -  April 2006, faced with 
i~ 
media inquiries concerniri.g possible backdating at Vitesse, Tomasetta and Hovanec attempted to 
cover 
up the fact that they had backdated·the fiscal year 2002 evergreen grants. Tomasetta·and 
Hovanec fabricated board 
ofdirector minutes that falsely documented a telephonic meeting of 
the Compensation Committee on October 2, 2001, which never occurred. Tomasetta also 
inserted an entry for an October 2, 2001 meeting into his Palm Pilot. 
36 

d. March 19, 1997 Fiscal 1997 OfficerlEmployee Evergreen Options 
96. Tomasetta and/or Hovanec backdated Vitesse's fiscal year 1997 officer and 
employee evergreen grant from April 15, 1997 to March 19, 1997. This grant included 
approximately 913,700 options awarded to 216 employees and officers. 
97. Tomasetta and Hovanec attended a meeting 
ofVitesse's Compensation 
Committee 
on April 15, 1997 at which time the Committee approved a nearly final list for the 
fiscal year 1997 evergreen options for officers and employees. The board book for Vitesse's 
next quarterly board meeting, which occurred 
on July 15, 1997, which Tomasetta and Hovanec 
also attended, includes an unsigned draft 
ofthe April 15, 1997 Compensation Committee 
meeting minutes. This draft states that 
on April 15
th
, 
"Dr. Tomasetta reviewed the process uSed 
to determine additional stock option awards to current employees based on current performance 
and long-term contribution to the Corporation." The draft further states that the Committee 
approved the employee and officer evergreens 
on April 15th, and that in accordance with the· 
terms 
ofthe company's option plans, the exer~ise price for these options is "the closing price of 
the company's stock on the date ofthe Compensation Committee meeting." 
98. The signed version 
ofthe April 15, 1997 Compensation Committee meeting 
minutes, .however, discloses an exercise price that is  different from the exercise price disclosed in 
the unsigned version 
ofthe minutes ineIudedjn~the July 15th Board book. These signed minutes 
.'. 
statethattheexercisepricefortheoptionsgrantedatthemeetingis theclosingprice ofthe· . 
company's stock 
on ''the date ofthetelephonic meeting ofthe Compensation Committee, March 
19, 1997." Vitesse's Compensation Committee, however, did not approve the fiscal year 1997 
evergreen options at a telephonic meeting on March 19, 1997. 
37
 

.99. Moreover, Vitesse's Compensation Committee did not even approve the final 
version 
ofthe officer evergreens uiltil after April 15, 1997. On April 22, 1997, Tomasetta 
submitted a final proposal 
forthe officer evergreens to the then Chair ofthe Compensation 
Committee. 
In that proposal, Tomasetta noted that one ofthe other directors suggested 
increasing Tomasetta's evergreen grant 
by an additiona150,000 options. 
100. The closing price 
ofVitesse's stock on March 19, 1997 was $22.50, which was 
thelowestclosingprice 
oftheCqmpany'sstockduringall of1997. InitsStockOptions 
Restatement, Vitesse revised the measurement date 
fOf these evergreen options to April15, 1997. 
Based 
on the closing price ofVitesse's stock on this date ($30.50), these options were in-the­
.. 
money on a per share basis by $8, and in the aggregate by approximately $7,309,600. 
Tomasetta's 600,0000 options (split-adjusted) were in-the-moneyby approximately $1.2 million,
.. 
and Hovanec's 120,000 options (split-adjusted) were in-the-money by approximately $240,000. 
,' 
101. Hovanec signed the April 15, 1997 Compensation Committee meeting minutes, 
Tomasetta signed Hovanec's corresponding stock option Grant Notice, and Hovanec signed the 
remaining stock option Grant Notices to employees and officers. 
e. August 15, 2002 New Hire and Other Grants 
102. On July 18, 2002, Tomasettaand Hovanec attended a Compensation Committee 
meeting where the Committee granted 
178,8QQ;Qptions to '48 new hires and certain current 
.:. . ...... 
employees. Vitesse's stock price declined thereafter, and on August 20, 2002, Hovanec repriced 
these options and gave them a revised grant date 
ofAugust 15,2002. A copy oftheoption grant' 
schedule that management submitted to the Compensation Committee at the July 
18 meeting 
contains handwritten notations that state ''$2.42'' and "grant as 
ofJuly 31, 2002." The July 31 
dateiscrossedoutand ontopofthisdatethereis anotherhandwrittendate of"8-15-02." The 
38
 

handwritten phrase thus reads "grant as of8-15-02;" This notation is signed by Hovanec and 
there is another handwritten notation stating "(revised 8-20-02 by Gene.)" 
103.· The closing price ofVitesse's stock on August 15,2002 was $1.26. This price 
represents the second to lowest closing price 
ofthe Company's stock between July 18th and 
August 
20; 2002. (Vitesse's stock closed just $0.01 lower on August 12,2002.) 
104. 
On or about August 23 2002, Hovanec signed the Grant Notices for these grants 
which contained the false August 15, 2002 grant date. The minutes documenting the 
Compensation Committee's July 18, 2002 meeting are backdated and state that the exercise price 
fortheseoptionsis 100% 
ofthefair marketvalue.ofthecompany'sstock onAugust15,2002. 
Hovanec signed the minutes. 
105. 
In its Stock Options Restatement, Vitesse concluded that these options were first' 
granted 
on July 18, 2002, and then repriced on September 19, 2002, the date ofthe next board 
meeting when the Compensation Committee minutes were final and signed. As a result 
ofthe 
.repricing, Vitesse applied variable accounting to the options, recording approximately $455,825 
in compensation expense in 2003, and reversing approximately $207,335 
ofthis expense in 2004 
and $35,346 
oftms expense in 2005 to give effect to subsequent declines in Vitesse's stock 
pnce. 
f. December 17, 2003 E~rtloyee Evergreen and Outstanding Performer 
.) -'.....
Grants·__ 
106. Tomasetta and or Hovanec backdated Vitesse'g fiscal year 2004 employee. 
evergreen and outstanding performer option grants from April 17, 2004 to December 17, 2003.. 
This grant included approximately 4,277,000 options that went to approximately 655 employees. 
107. Tomasetta and Hovanec attended a meeting 
ofVitesse's Compensation 
Committee 
on October 16
th
, 
2003 at which time the Committee reviewed preliminary proposals 
39
 

for outstanding perfonner and officer and employee evergreen grants. Eight days later, Vitesse's 
HR Department forwarded preliminary employee evergreen option proposals to Company 
managers (including Tomasetta and Hovanec) requesting that they review, edit, 
and return the 
revised proposals by November 
21 st so that Tomasetta could approve the grants. Vitesse's 
managers were still submitting revisions to the HR Department through the end 
ofJanuary 2004. 
On December 22, 2003, an employee in the HR Department Sent an email to a Vitesse vice 
president stating that the grant date and exercise price for the evergreen and outstanding 
perfonner grants had not yet been determined. 
108. After Tomasetta approved the revised employee evergreen proposals, the 
Assistant included schedules for the evergreens, as well as for proposals for outstanding 
perfonner grants, in the board book that the Assistant preparedfor the Board;s next meeting on 
January 26, 2004. At that meeting, which Tomasetta and Hovanec attended, Vitesse's 
Compensation Committee reviewed and granted the option proposals that were presented. On 
February 
5,2004, an employee in the HR Department sent an email to Vitesse managers 
(including Tomasetta and Hovanec) infonning them that Tomasetta had approved the 
outstanding perfonner grants with a grant date 
ofDecember 17, 2003. 
109. Vitesse's January 
26,2004 Compensation Committee meeting minutes are 
backdated. They state that the Committee 
gra,ntted the employee evergreens and outstanding 
., .~. 
perfonner options on January 26th, and then they further state that the exercise price for the 
options is thefairmarketvalueofVitesse'sstock"onthedate 
ofgrant, December 17, 2003." 
The closing price ofVitesse's stock on December 17
th 
was $5.69. This price is the lowest 
c10smg price ofthe Company's stock between September 2003 and March 2004. 
40
 

110. As alleged below, during November 2005 through April 2006, faced with media 
inquiries concerning possible backdating at Vitesse, Tomasetta and Hovanec attempted to cover 
up the fact that they had backdated option grants. To this end, Hovanec drafted and signed 
minutes that document a telephonic meeting 
ofthe Compensation Committee on December 17, 
2003 that never occurred. Hovanec made it  appear as though these minutes had been created 
contemporaneously with the December 
17
th 
meeting date. 
111. In its Stock Options Restatement, Vitesse revised the measurement date for these 
grants to April 17, 
2004,the date ofthe neXt Board meeting where the January 26
th 
Compensation Committee meeting minutes were final and signed. Based on the closing price of 
Vitesse's stock on April 17
th
, these options were in the money on a per share basis by $0.08, and 
in the aggregate 
by $336,000. Hovanec signed the January 24
th 
minutes, and Hovanec and 
Tomasetta signed the corresponding Grant Notices which contained the false grant date. 
6.	 Tomasetta's and Hovanec's Attempt to Conceal Their Backdating Scheme in 
The Face of Media Inquiries During November 2005 to April 2006 
112. In early November 2005, the Journal contacted Vitesse about the legitimacy ofits 
option granting practices. After the 
Journal's inquiries, Mody contacted Vitesse's Outside 
Counsel. Outside Counsel told Mody not to destroy or create any documents, and then it 
reviewed some 
ofthe Company's Compensation Committee meeting minutes. In mid­
:i,.. " '.-> 
November, Outside Counsel informed Mody'th~t it was concerned because some ofthe millutes 
were backdated 
on their face, meaning that theoption grant dates disclosed in the text were 
different from the meeting dates. During different phone calls, Outside Counsel repeated this 
concern to Hovanec and Tomasetta, and it  specifically advised Tomasetta and Mody that Vitesse 
should conduct 
an independent investigation into the Company's option grant practices. In late 
November 2005, Outside Counsel informed Tomasetta that there might be very significant 
41
 

charges to the Company's financial statements because certain stock option grants were not 
properly accounted for, and it warned him against signing Vitesse's upcoming filing 
ofits Form 
lO-K for fiscal year ended September 
30,2005 unless he was certain that the Company's 
fmancial statements were accurate. 
113. Rather than follow Outside Counsel's advice, Tomasetta and 
Hov<,illec attempted 
to cover 
up their backdating practice by lying to Vitesse's board members and its Auditor, by 
creating and signing three bogus Compensation Committee meeting minutes to document grants 
at meetings that did not occur, and 
by Tomasetta recording two ofthese phantom meetings in his 
Palm Pilot. 
114. Specifically,inlateNovember2005, 
Tomasettainstructed Modytodrafttwosets 
ofCompensationCommittee minutes, dated April 6 and October 2,2001, which were the 
backdated grant dates for two large evergreen grants to employees and officers. In fact, as 
Tomasetta·later admitted to counsel for Vitesse's Special Committee ("Special Committee. 
Counsel"), Tomasetta had only recently signed the former, Hovanec the latter, and 
on November 
22, Tomasetta arranged for the former head 
ofVitesse's Compensation Committee to sign both. 
On 
or about December 13, 2005, Hovanec directed the Assistant to draft another set of 
Compensation Committee minutes, which Hovanec signed, for a purported December 17, 2003 
meeting thatnever occurred. December 17, 
20Q3 represents the backdated grant date for another 
.--'-; 
. evergreen grant. All three ofthese minutes pui]x>it to document the granting ofoptions on their 
respective dates. Vitesse's Compensation Committee, however, did not grant any options on 
these dates. 
115. After creating the two false 2001 Committee minutes, Tomasetta and Hovanec 
attended a December 
6, 2005 Audit Committee meeting that was also attended by Mody, three 
42
 

Vitesse directors, and Vitesse's Auditors. At this meeting, Mody presented a memo that Mody 
had prepared to document management's review 
ofoption grant practices during fiscal years 
1996-2005. This memo, which all 
ofthe meeting participants discussed, assesses whether the 
Company's evergreen option grants were properly approved and accounted for in.confonnity 
with APB 25. The memo concludes that with the exception 
ofthe Company's fiscal year 1998 
evergreen grant, all 
ofVitesse's other evergreen grants confonned to APB 25. The memo 
concludes that the 1998 evergreen grant had been inadvertently misdated to the same grant date 
as that year's directors' grant, and that the resulting unrecorded compensation expense was 
immaterial. Six days later, Tomasetta signed and certified Vitesse's fiscal 2005 Form 10-K 
which failed to properly record 
or disclose the compensation costs from the grants he and 
Hovanec 
had previously backdated. The following day, on December 13, Vitesse filed its 2005 
Form 10-K with the Commission. 
116. During February and March 2006, the Journal began contacting Vitesse's 
directors to discuss the Company's option grant practices. In-a series 
ofemails between 
Tomasetta, Hovanec, 
Modyand severalofVitesse's directors, Tomasetta and Hovanec both 
falsely stated, in substance, that Vitesse set the exercise price 
ofthe Company's stock options 
according to the closing price 
ofthe stock on the date the directors approved the options. On 
March 18, 2006, the Journal published an article raising questions ofpossible backdating of 
• .~.'j 
CEO option grants at a number ofpliblic comPanies, including Vitesse. 
117. 
In early April 2006, a Special Committee ofVitesse's board hired the Special 
Committee Counsel to investigate the Company's prior stock option grants. Early in the 
investigation, Tomasetla and Hovanec tried to make it  appear as though the two 2001 
Compensation Committee meeting minutes they had created in November 2005 had been 
43
 

prepared contemporaneously with their purported meeting dates. On April 12, Hovanec typed . 
these two sets 
ofminutes on Tomasetta's computer. Tom~setta and Mody copied them to a disc, 
and then from this disc Tomasetta copied them onto the Assistant's computer. With Mody and 
Hovanec watching, Tomasetta turned back the clock 
on the Assistant's computer so that the 
creation date for these two documents would match the oldest creation date associated with other 
meeting minutes found 
on the Assistant's computer. Tomasettaadmitted to Special Committee 
Counsel that he had told Hovanec and Mody that this conduct "is the Martha Stewart thing, this 
is dumb, we need to stop -we're going to go tojail." 
118. Tomasetta eventually admitted to Special Committee Counsel the above facts 
..	 . 
concerning the recent creation and signing ofthe April 6 and October 2,2001 minutes, including 
inserting them 
on the Assistant's computer and his comment about Martha Stewart and going to 
jail. Despite his admissions, Tomasetta falsely maintained that Vitesse had actually held 
Compensation Committee meetings 
on April 6 and October 2, 2001. Tomasetta also failed to 
acknowledge to Special Committee Counsel that he had entered the April 6 and OCtober 2, 2001 
Committee meeting dates in his Palm Pilot in November 2005. 
C.	 THE INDIVIDUAL DEFENDANTS CAUSED VITESSE TO FILE MATERIALLY 
FALSE AND MISLEADING FINANCIAL STATEMENTS AND 
OTHER 
FILINGS· 
1.	 Annual Reports, Quarterly~eports,Registration Statements,· 
.• and Sarbanes-Oxley Certifi~ations .~ . 
119. Asa public company, Vitesse filed annual reports with the Corrimission that 
included audited financial statements certified by the Company's Auditor. As a result ofthe 
revenue and options backdating schemes alleged above, and in furtherance 
ofsuch schemes; 
each 
ofVitesse's 10 annual reports on Forms 10-K for fiscal years ended September 30, 1996 to 
September 
30,2005 was false and misleading, as set forth below. Each ofthese annual reports 
44
 

failed to include compensation expense for backdated and/or repriced stock option grants, and 
contained false and misleading accounting and other disclosures related to stock option grants
.. 
Further, each ofVitesse's five Forms lO-K for fiscal years 2001 to 2005 improperly reported 
revenue resulting from the revenue recognition fraud, and contained false and misleading 
disclosures related to Vitesse's revenue recognition practices. 
120. In each 
ofitsalmual reports on Form 10-K for Vitesse's fiscal years ended 
September 30, 1996 through September 
30,2005 filed on October 25, 1996, December 29, 1997, 
December 23, 1998, December 23, 1999, December 19,2000, December 17, 2001, December 
18, 2002, December 16, 2003, December 10, 2004, and December 13, 2005, Vitesse disclosed 
that it accounted for stock 
options in accordance with APB 25. 
In each ofits annual reports on 
Form lO-K filed on December 19, 2000, December 17,2001, Dec.ember 18, 2002, December 16, 
2003, December 10, 2004, and December 14, 2005, Vitesse disclosed that it complied with FIN 
44 and that 
it records compensation expense for stock options only ifthe marketprice ofthe 
company'sstockexceedstheexerciseprice 
onthedate ofgrant. Ineachoftheseannualreports, 
Vitesse did not report any compensation expense for stock options that it granted to employees, 
under the company's shareholder approved stock option plans, with an exercise price below the 
company's stock price 
on the date ofgrant. 
121. In its annual report on Form 10:-:K filed on October 25,1996, Vitesse disclosed 
. ./";. ~ . 
that under the Company's shareholder approved 1991 Stock Option PlaIi the exercise price for all 
stockoptionsmustbeequaltothefairmarketvalue ofitsstock onthedate ofgrant. ThisForm 
lO-K also discloses that under the Company's shareholder approved 1989 
StockOptionPlan the 
exercise price for all incentive stock options must be equal to the fair market value 
ofits stock on 
the date ofgrant and the exercise price for nonstatutory stock options must be at least 85% ofthe 
45
 

fair market value ofthe Company's stock on the date ofgrant. In its annual reports on Form 10­
K filed 
on December 29, 1997, December 23, 1998, December 23, 1999, December 19, 2000, 
December 17, 2001, December 18, 2002, December 16,2003, December 10, 2004, and 
December 13, 2005, Vitesse disclosed that under all 
ofthe Company's shareholder approved 
stock option plans, ''The exercise price ofall stock options must be at least equal to the fair 
market values ofthe shares ofcommon stock on the date ofgrant." 
122. In its annual reports 
on Form 10-K filed on December 19, 2000 and December 17, 
2001, ViteSse disclosed that it recorded deferred compensation expense for stock options in 
connection with certain acquisitions. In its annual reports 
on Form 10-K filed on December 18, 
2002, December 16, 2003, and December 10, 2004, Vitesse disclosed that it incurred 
compensationexpenseasa result 
ofassumingthestockoptionplans,andrelatedoptiongrants, .. 
ofcertain companies that it had acquired. Vitesse disclosed in substantially similar words that, 
as a result, when reviewing such disclosed expense, "it appears that certain options were granted 
at less than fair market value, but which really represent grants given to employees 
ofthe 
acquired companies prior to their respective acquisitions by Vitesse. Other than the foregoing, 
all 
ofthe options grants made by Vitesse to employees and directors are granted at fair market 
valueat 
thetirneofgrant." Further,Vitessedisclosedinitsannualreport onForm10-Kfiled on 
December 10, 2004 and December 13, 20051h3t,~'We have no options granted to employees in 
'. . ...... 
which the market price ofthe underlying stock exceeded the exercise price on the date ofgrant." 
123. . Contrary to the representations that it made in 
paragraphs~~ 120-122, Vitesse, 
through the actions 
ofTomasetta and Hovanec, was incurring substantial compensation expense 
as a result ofgranting in-the-money employee stock options under the Company's shareholder 
. . 
approved 1989 Stock Option Plan, 1991 Stock Option Plan and 2001 Stock Incentive Plan. In 
46
 

the financial statements ofeach ofVitesse's Fonns 10-K for fiscal years ended September 30, 
1996 through September 30,2005, Vitesse failed to record approximately $184 millionin 
compensation expenses resulting from backdated and repriced 
option grants. These unrecorded 
expenses overstated Vitesse's annual pretax income 
or understated it  annual pretax loss by 
between 1.7% and 45.7% in fiscal years 1996 through 2005, as identified specifically above, 
rendering the financial statements materially false and misleading. 
124. 
In its annual report on Form lO-K filed on December 17,2001 for the fiscal year 
ended September 
30,2001, Vitesse also disclosed that its revenue recognition policy for product 
.. 
sales was: "Production revenue is recognized when products are shipped to customers, w~ch is 
when title and risk 
ofloss transfers to the customer." Vitesse's annual reports on Form 10-K for 
the subsequent fiscal years 2002 through 2005 filed with the Commission on December 18, 
2002, December 16, 2003, December 10,2004, and December 14, 2005 state that Vitesse 
accounted for revenue from product sales as follows: "Production revenue is recognized when 
persllasive evidence 
ofan arrangement exists, the sales price is  fixed, products are shipped to 
customers, which is  when title and risk 
ofloss transfers to the customer, and collectability is 
reasonably assured." Each 
ofVitesse's annual reports for fiscal years 2001 through 2005 also 
state in substantially similar terms related to product sales to Nu Horizons, "Certain ofthe 
Company's production revenue are made to 
a..PJajor distributor under an agreement allowing for 
)' ...... 
price protection and right ofreturn on products unsold. Accordingly, the Company defers 
recognition ofrevenue on such products until the products are sold by the distributor to the end 
user." 
125. Contrary to the representations that 
it made in~ 124,Vitesse improperly recorded 
revenue in material amounts in each 
ofthe financial statements included inthese annual reports 
47
 

on Form 10-K for its fiscal years 2001 through 2005, rendering the revenue and income reported 
in those financial statements, and the revenue recognition policies included in those reports for 
product sales and for sales 
to its major distributor, materially false and misleading. Vitesse also 
materially misstated the accounts receivable balances in the financial statements for certain 
of 
these years. 
126. Tomasetta reviewed and signed each 
ofVitesse's annual reports on Form lO-K 
for the fiscal 
year~ 1996 through 2005 referenced in ~~ 120-124. Hovanec reviewed and signed 
each 
ofVitesse's annual reports on Form 10-K for fiscal years 1996 through 2004. Mody 
participated 
in preparing and reviewed each ofVitesse's annual reports on Form 10-K for fiscal 
years 2001 through 2005, and he signed the annual report 
on Form 10-K for fiscal year 2005. 
Kaplan participated in preparing and reviewed each 
ofVitesse's annual reports on Form 10-K for 
fiscal years 2001 through 2005. 
127. Tomasetta and Hovanec knew, should have known, 
or were reckless in not 
kpowingthateach 
oftheforegoing annualreportsthattheysigned·andreviewedmaterially 
misrepresented Vitesse's revenues, stock-based compensation expense, income, and in certain 
years accounts receivable, and made materially false and misleading disclosures and omitted 
material infonnation 
about Vitesse's revenue recognition and stock option practices and policies. 
128.	 
Modyand Kaplan knew, shou,l,d4lave known, or were reckless in not knowing that 
-
each ofthe foregoing annual reports that they participated in preparing, reviewed, and/or signed 
materially misrepresented Vitesse's revenues, income, and accounts receivable, and made 
materiallyfalse and misleading disclosures and omitted material information about Vitesse's 
revenue recognition practices and policies. 
48
 

129. In addition, Vitesse filed 30 quarterly reports on Forms 10-Q between June 24, 
1996 and February 8, 2006, which falsely reflect that Vitesse. incurred no compensation expense 
for options granted to employees with exercise prices below the company's stock price 
on the 
date 
ofgrant and for options that Were repriced. Nine ofVitesse's Forms 10-Q, filed from May 
13, 2003 to February 
8, 2006, falsely state that the Company applied APB 25 during the relevant 
time, and six 
ofits Forms 10-Q, filed from February 13, 2004 to August 9,2005, falsely state 
that Vitesse did not grant in-the-money options. 
. .. 
130. Thirteen ofVitesse's Forms lO-Q, filed from February 2002 to February 2006, 
falsely reflect overstated revenue, and thus income, and certain 
ofthese reports also contain 
overstated accounts receivable balances as a result 
ofVitesse's improper revenue recognition 
practices~ Each ofthe 12 quarterly reports filed during March 31,2002 through February 2006 
also contain false and misleading revenue recognition policy disclosures that state in 
substantially similarterms that Vitesse recogniZes product revenue when "products are shipped 
to customers, which is when title and risk 
ofloss transfers to the customers." The four quarterly 
reports filed between February 2005 and February 2006 also contain the following false and 
misleading disclosure related to product sales to 
Nu Horizons: "Certain ofthe Company's 
production revenue are 
madeto a major distributor under lin agreement allowing for price 
protection and right 
ofreturn on products urts,o~.. Accordingly, the Company defers recognition 
. .! "~ . 
ofrevenue on such products until the products are sold by the distl:ibutor to the end user." 
131. Tbmasetta reviewed all 30 ofthesequarterly reports 
on Form 10-Q. Hovanec 
reviewedandsigned each 
ofthe27Vitessequarterlyreportsfiled withtheCommissionbetween 
June 24, 1996 and February 
8, 2005. Mody participated in preparing and reviewed each ofthe 
quarterly reports that Vitesse filed with the Commission from February 14,2002 through 
49
 

February 8, 2006, and he signed the quarterly reports filed from May 2005 through February 8, 
2006. Kaplan participated in preparing each 
ofthe quarterly reports filed with the Commission 
from February 14, 2002 through February 8,2006. 
132. Tomasetta and Hovanec knew; should 
have known, 
or were reckless in not 
knowing that each 
ofthe foregoing quarterly reports that they signed and/or reviewed materially 
misrepresented Vitesse's revenues, stock-based compensation expense, income, and in certain 
quarters accounts receivable, and made materially false and misleading disclosures and omitted 
material information about Vitesse's revenue recognition and stock option practices and policies. 
i33. 
Modyand Kaplan knew, should have known, or were reckless in not knowing that 
each 
ofthe foregoing quarterly reports that they participated in preparing, reviewed, and/or 
signed materially misrepresented Vitesse's revenues, income, and in certain periods accounts 
receivable, and made materially false and misleading'disclosures and omitted material 
information about Vitesse's revenue recognition practices and policies. 
134. Tomasetta signed Sarbanes-Oxley 302 certifications 
forthe annual reports on 
Form 10-K for fiscal years 2002.. 2003, 2004 and 2005, and for ten quarterly reports on Form 10­
Q filed 
on February 14, 2003 through February 8,2006. Hovanec signed Sarbanes-Oxley 302 
certifications for the annual reports 
on Form 10-K for fiscal years 2002, 2003, and 2004, and for 
seven quarterly reports 
on Form 10.;Q filed o~ ~ebruary 14; 2003 through February 8, 2005. . 
. • _.J: .~ 
. Mody signed Sarbanes-Oxley 302 certificatio~ for the annual report on Form 10-K for fiscal 
year 2005, and for three quarterlyreports on Form 1Q-Q filed between May 10, 2005 through 
February 8, 2006. 
135. The foregoing certifications that Tomasetta, Hovanec, and Mody signed 
referenced in 
~ 134, state that they had reviewed the report and that (a) the report did not contain 
50
 

any untrue statement ofa material fact or omit to state a material fact necessary to make the 
statements made, in light 
ofthe circumstances under which such statements were made, not 
misleading; (b) the financial statements, and other fmancial information included in each report, 
fairly presented in all material respects the financial condition, results 
ofoperations, and cash 
flows 
ofVitesse as o~ and for, the period presented in the report; and that (c) Tomasetta, 
Hovanec and Mody had disclosed to Vitesse's auditors all significant deficiencies in the design 
or operation ofVitesse's internal controls and any fraud, whether or not material, that involved 
management 
or other employees who had a significant role in Vitesse's internal controls. 
Tomasetta, Hovanec and Mody had ample information at the time that they signed these 
certifications to know that they were not true. 
136. Between October 23, 1996 and March 
23,2006, Vitesse filed atotal of37 
registration statements, that incorporated by reference materially false and misleading financial 
statements, as well as materially false and misleading disclosures from Vitesse's annual reports 
on Form 10-I<., quarterly reports on Form 10-Q and proxy statements. Sixteen ofthese 
registration statements were filed on Forms S-3 or S-3/A, and 21 were filed on Forms S-8 or S-8 
POS. Vitesse also filed a prospectus supplement 
on February 6,2006, which incorporates by 
reference Vitesse's Form IO-K filed on December 10, 2004, and Vitesse's Forms 10-Q filed on . 
February 
8,2005 and May 10, 2005. TQma~etta and Iiovanec signed each ofthe 16 Forms S-3 
or S-3/Athat Vitesse filed on October 23, 1996, February 19, 1999, April 8, 1999, October 22, 
1999, November 4, 1999, November 24, 1999, February 15, 2000, June 
7,2000 (two S-3s), 
September 
5,2000, December 20,2000, May 23,2001, June 11, 2001, May 12, 2003, December 
29,2004 and March 16~ 2005. Tomasetta and Hovanec also signed each ofthe 19 Forms S-8 or 
S-8 POS that Vitesse filed from May 22, 1998 through November 23, 2004. Tomasetta and 
-51
 

Mody each signed two Fonns S-8 that Vitesse filed on November 30, 2005 and March 23, 2006. 
Kaplan participated in preparing various 
ofthese registration statements during late 2001 through 
at least 2005. 
137. Tomasetta, Hovanec, and Mody knew, should have known, 
or were reckless in 
not knowing that these registrations statements were false and misleading by their incorporation 
ofmaterially false and misleading financial statements and stock option and revenue recognition . 
disclosures from Vitesse's annual reports on Form 10-K, quarterly reports on Form lO-Q, and/or 
proxy statements. 
2. Fonns 4 and 5 and Proxy Statements 
138. In addition, Torriasetta and Hovanec filed Fonns 4 and 5 with the Commission in 
connection with stock option grants that each received. Tomasetta and Hovanec permitted false 
and misleading statements to.be made in those filings. The Fonns 
4 and 5 were false in that they 
reported as a ''transaction date" the purported dates ofstock option grants when in fact options 
were never granted 
on those transaction dates. The false information with respect to the 
''transaction date" permitted Tomasetta and Hovanec to conceal the compensation that they 
received through the grant 
ofin-the-money options. The Fonns 4 were also misleading in that 
they disclosed an "expiration date," which under 
V~tesse's various option plans was required to 
be ten years from the date ofgrant, that sugg~~aparticular date ofgrant for stock option 
J: .' 
grants when in fact options were never granted-on the date implied by the expiration date. The 
fonns filed were as follows (share totals are adjusted for stock splits in 1997, 1998 and 1999): 
Filer 
Date 
ofFiling Form 
False 
Transaction 
Date 
Purported 
Option Grant 
Expiration 
Date 
Total 
Shares' 
Tomasetta 10/7/96 4 1/23/96 1/23/06 300,000 
Tomasetta 8/8/97 4 3/19/97 3/19/07 600,000 
52
 

Tomasetta 5/8/98 4 1/1/98 
1/1/08 900,000 
Tomasetta 4/9/99 
4 
10/5/98 
10/5/08 760,000 
Tomasetta 10/30/01 5 
4/6/01 4/6/11 
1,200,000 
Tomasetta 3/8/02 4 10/2/01 10/2/11 
720,000 
Tomasetta 8/14/02 4 
10/2/01 10/2/11 
1,205,048 
Tomasetta 8/28/02 
4 
10/2/01 
10/2/11 
1,205,048 
TomaSetta 10/22/03 
4 10/20/03 
10/20/2013 .950,000 
Hovanec 9/10/96 4 1/23/96 
1/23/06 180,000 
Hovanec. 5/8/98 
4 1/1/98 
·1/1/08 
210,000 
Hovanec 3/10/99 
4 
10/5/98 
10/05/08 160,000 
Hovanec 10/30/01 5 
4/6/01 4/6/11 300,000 
Hovanec 3/8/02 4 
10/2/01 10/2/11 
230,000 
Hovanec 8/14/02 
4 10/2/OJ 10/2/11 303,245 
Hovanec 10/22/03 4 
10/20/03 
10/20/2013 250,000 
139. Tomasetta and Hovanec knew, should have known, 
or were reckless in not 
knowing that they made materially false and misleading statements and disclosures in these 
filings that they reviewed and/or signed. 
140. Vitesse also filed proxy statements with the Commission 
on December 18, 2002 
and December 10, 2004, wherein it solicited proxies to reelect Tomasetta and other directors to 
Vitesse's Board 
ofDirectors. These proxy statements disclose false grant dates for stock options 
issued to named executive officers including Tomasetta and Hovanec. The proxy statement filed 
on December 18, 2002 falsely states that stock options were granted to named executive officers 
on October 2, 2001, and the proxy statement filzd,on Dec~Jllber 10, 2004 falsely states that stock 
.... ; 
.' 
options were granted to named executive officers on October 20,2003. The information 
relating to executive compensation and stock option grants reported in the proxy statements was 
incorporated 
by reference into the annual reports on Form 10-K signed by Tomasetta and/or 
Hovanec and/or Mody during this period. 
141.· As a result ofthe misconduct ofTomasetta and Hovanec, Vitesse's books and 
records falsely and inaccurately reflected, among other things, the grant dates ofstock options, 
53
 

revenues, stock-based Compensation expense, income, and accounts receivable, and the 
Company's financial condition. Additionally, Tomasetta and Hovanec circumvented internal 
accounting controls and, 
by virtue oftheir misconduct, failed to maintain a system ofinternal 
accounting controls sufficient to provide assurances that stock option grants, revenues, income, 
and accounts receivable were accurately recorded to permit the proper preparation of financial 
statements in conformity with GAAP. 
142. As a result 
ofthe misconduct ofMody and Kap1ari, Vitesse's books and records 
falsely and inaccurately reflected, among other things, revenues, stock-based compensation 
expense, income, and accounts receivable, and the Company's fmancial condition. Additionally, 
Modyand Kaplan circumvented internal accounting controls and, by virtue oftheir misconduct, 
failed to maintain a system 
ofinternal accounting controls sufficient to provide assurances that 
the Company's revenues, income, and accounts receivable were accurately recorded to permit 
the proper preparation 
offinancial statements in conformity with GAAP. 
D. MISREPRESENTATIONS TO VITESSE'S AUDITOR 
143. In addition to the conduct alleged above by which Tomasetta, Hovanec, Mody, 
and Kaplan each engaged in conduct to mislead Vitesse's Auditor and to conceal their fraud 
throughthefalsification 
ofdocuments, amongotheractions, each ofthemalso··knowinglymade 
false and Inis1eading representations to the Ay.ditor in management representations letters that 
. .... 
they signed and provided to the Auditor. These letters were provided to the Auditor in the course· 
ifits annual audits and quarterly reviews 0 f the Company's financial statements, among other 
reasons. 
144. In substantially similar words, the letters Tomasetta, Hovanec, Mody, and 
Kaplan signed and provided to the Auditor in connection with audits 
or reviews ofthe 
54
 

Company's fmancial statements during the period from 1996 through 2006 contain the following. 
acknowledgements: 
145. 
"We acknowledge our responsibility for the design and implementation of 
. programs and controls to prevent, deter and detect fraud.	 We understand that the term 'fraud' 
includes misstatements arising from fraudulent financial reporting." and that "[m]isstatements 
arising from fraudulent financial reporting 
ate intentional misstatements, or omissions of 
amounts or disclosures in financial statements to deceive financial statement users." 
146. "[W]e confirm 
we are responsible for the fair presentation in the consolidated 
financial statements 
offinancial position." 
147. 
"We accept and acknowledge our responsibility for establishing and maintaining 
effective internal control over financial reporting." 
148. Each 
ofthese management letters also contains affmnative representations in 
respect to the Company's financial statements, financial records, transactions, and possible fraud 
by management or employees, as follows: 
149. 
"The consolidated financial statements referred to above are fairly presented in 
conformity with accepted accounting principles generally accepted in the United States 
of 
America." 
150. 
''We have made available to yoli..'. all financial records and related data" 
..). . -..... 
151. ''There are no ... material transactions that have not been properly recorded in the 
accounting records underlying the consolidated financial statements" 
152. 
"We have no knowledge ofany fraud or suspected fraud affecting the entity 
involving: (a) management; 
(b) employees who have significantroles in internal control, or (c) 
others where the fraud could have a material effect 
on the consolidated financial statements." 
55
 

153. These representations were false, as Torriasetta, Hovanec, Mody, and Kaplan each 
knew as a result 
ofthe revenue recognition fraud each ofthem engaged in and as a result ofthe 
stock option backdating fraud Tomasetta and Hovanec perpetrated, as detailed in this Complaint. 
154. Tomasetta, Hovanec, Mody, and Kaplan also falsely stated in management 
representation letters provided to the Auditor during January 2002 through January 2006 that, 
''There have been no false statements affecting the Company's consolidated financial statements 
made to you." 
155. In management representation letters for fiscalyears 2001 through 2005, 
Tomasetta, Hovanec, Mody, and/or Kaplan represented in substantially similar
words that, 
"Receivables reported in the consolidated financial statements represerit valid claims against 
debtors for sales 
or other charges arising on or before the balance-sheet date and have been 
appropriately reduced to their estimated net realizable value." Tomasetta, Hovanec, Mody, 
and/or Kaplan knew that this representation was false as a result 
oftheir fraudulent revenue 
recognition practices. 
156. In management representation letters for fiscal years 1999 through 2005, with the 
exception 
offiscal year 2002, Tomasetta and/or Hovanec falsely represented in substantially 
similar words that, "(s)tock-related awards to employees have been accounted for in accordance 
with the 
provisionS 
ofAPB Opinion No. 25, ,A6countingf6r Stock Issued to Employees. 
.:. .......
 
157. Tomasetta knowingly signed false management representation letters for annual 
audits covering fiscal years 1996 through 1999 
an~ 2005, and for quarterly reviews in 2005 and 
2006. The letters for the annual audits are dated December 12, 2005, October 14, 1999, October 
14, 1998, 
Odober 21, 1997, and October 18, 1996. The letters for the quarterly reviews are 
dated January 23,2006 and July 20,2005. 
56 

158. Hovanec knowingly signed false management representation letters for annual 
audits covering fiscal years 1996 through 2004, and numerous quarterly reviews from at least 
1999 through 2005. These letters for the annual audits are dated, October 28, 2004, October 23, 
2003, October 18,2002, October 19, 2001, October 16, 2000, October 14, 1999, October 14, 
1998~ October 21, 1997, and October 18, 1996. The letters for the quarterly reviews are dated 
Apri121, 2005, January 18, 2005, April 22, 2004, February 11, 2004, July 
21,2003, April 21, 
2003, January 24,2002, July 17,.2002, July 13, 2001, January 19, 2001, August 14,2000, May 
12, 2000, January 
7, 2000, and April 7, 1999. 
159. Mody knowingly signed false management representation letters for annual audits 
covering fiscal years 2001 through 2005, and for quarterly reviews during 2002 through January 
2006. These letters for the annual audits are dated December 12, 2005, October 28, 2004, 
October 23,2003, October 18, 2002, and October 19, 2001. The letters for the quarterly reviews 
. are dated January 
23,2006, July 20,2005, Apri121, 2005, January 18, 2005, July 16, 2004, April 
22,2004, February 11, 2004, July 21,2003, April 21, 2003, July 17, 2002, and January 24,2002. 
160. Kaplan knowingly signed a false management representation letter for the fiscal 
2005 annual audit dated December 12, 2005. 
161. Each 
ofthe.defendants also provided false management representation letters to 
the Auditor that reaffinned certain 
ofthese ag~e·letters in connection with annual audits. Each 
.	 .! .. "­
ofthe defendants also provided such letters in connection with the Auditors review and inclusion 
oftheir audit reportsin Vitesse registration statements fot securities offerings. 
E.	 TOMASETTA, HOVANEC, MODY AND KAPLAN PROFITED
 
FROM THEIR SCHEMES
 
162. Tomasetta, Hovanec, Mody, and Kaplan profited from their misconduct. 
Tomasetta and Hovanec personally benefited from their options backdating scheme by awarding 
57
 

themselves in millions ofdollars in potential profit as a result ofthe in-the-money options that 
theyreceived. 
Byexercisingbackdatedoptions,each ofthemalsoactuallyreapedtangible 
fmancial benefits from their fraud in the amounts ofmillions ofdollars. 
163. Tomasetta and Hovanec obtained additional profits through the sale 
ofshares of 
Vitesse stock, acquired largely through their exercises ofVitesse stock options, which they sold 
into the market at  times when the price 
ofthe Company's stock was inflated by the fraud. 
164. -  Tomasetta, Hovanec, Mody, and Kaplan also each profited by receiving cash 
bonuses during their fraudulent conduct. Bonuses received by Tomasetta and Hovanec were in 
part based 
on achieving financial targets, including operating income targets. -IfVitesse had 
properly recorded compensation expense for the option grants that Tomasetta and Hovanec had 
backdated and repriced, then it would have recorded lower operating income results and 
Tomasetta and Hovanec would have received smaller bonuses. In addition, 
bonu~es awarded to 
or paid to Tomasetta, Hovanec, Mody, and Kaplan during their fraud were based upon bonus 
plans that provided that no bonUs award was considered earned, but instead was totally 
dependent 
on the officer remaining an employee at the tjrne the bonus payments vested and were 
made, which was typically in one or more installments during subsequent years. Tomasetta's, 
Hovanec's, Mody's, and Kaplan's continued employment during their fraud therefore allowed 
each
ofthemtoreceivetheirbonuspayments.._JIadVitesse'sBoard ofDirectorsdiscovered their 
i": . 
fraud earlier and terminated them, Tomasetta,Hovanec, Mody, and Kaplan would not have 
-received their bonus payments. 
58
 

FIRST CLAIM FOR RELIEF 
Violations of Exchange Act Section lOeb) and Exchange Act Rule IOb-S 
(AIIOefendants) 
165. The Commission realleges and incorporates by reference Paragraphs 1 through 
164. 
166. Vitesse, Tomasetta, Hovanec, Mody, and Kaplan, directly 
or indirectly, by the use 
ofthemeans orinstrumentalitiesofinterstatecommerce, orofthemails, orofafacilityofa. 
national securities exchange, in connection with the purchase or sale ofsecurities, and with 
knowledge 
or recklessness: (a) employed devices, schemes, or artifices to defraud; (b) made 
untrue statements 
ofmaterial fact or omitted to state a material fact necessary to make the 
statements made, in light 
ofthe circumstances under which they were made, not misleading; and 
(c) engaged in acts, transactions, practices 
orcourses ofbusiness that operated orwouldoperate 
as a fraud 
or deceit upon other persons. 
167. By engaging in the conduct alleged above, Vitesse, Tomasetta, Hovanec, Mody 
and Kaplan, and each ofthem, directly 
or indirectly, violated, and unless restrained and enjoined 
will continue to violate, Section 10(b) 
ofthe Exchange Act and Exchange Act Rule 10b-5 [15 
U.S.c. § 78j(b); 17 C.F.R. § 240.10b-5]. 
SECOND CLAIM-FOR RELIEF 
:i ".. '.". 
,l';--} ""­
Violations ofSecurities Act Section 17(a) 
(All Defendants) 
168. The Commission realleges and incorporates by reference Paragraphs 1 through 
164. 
169. Vitesse, Tomasetta,.Hovanec, 
Modyand Kaplan, directly or indirectly, by use of 
the means or instruments ofinterstate commerce or ofthe mails, in connection with the offer or 
59
 

sale ofsecurities, and with knowledge, recklessness, Of negligence: 1) employed devices, 
schemes, 
or artifices to defraud; 2) obtained money or property by means ofuntrue statements of 
material fact or by omitting to state material facts necessary in order to make the statements 
made., in light ofthe circumstances under which they were made, not misleading; or 3) engaged 
in transactions, practices 
or courses ofbusiness which operated or would operate as a fraud or 
deceit upon purchasersofVitesse securities. 
170. 
By engaging in the conduct alleged above, Vitesse, Tomasetta, Hovanec, Mody, 
and Kaplan, and each ofthem, directly 
or indirectly, violated, andunless restrained and enjoined 
will continue to violate, Sections 17(a)(1), (2), and (3) 
ofthe Securities Act [15 U.S.C.§ 
77q(a)(1), (2), and (3)]. 
THIRD CLAIM FOR RELIEF
 
Viobitions of Securities Act Section 13(b)(S) and Exchange Act 13b2-1
 
(Tomasetta, Hovanec, Mody, 
and Kaplan)
 
171. The Commission realleges and incorporates by reference Paragraphs 1 through 
164. 
. 172. 
By engaging in the conduct alleged above, Tomasetta, Hovanec, Mody, and 
Kaplan knowingly falsified books, records and accounts at Vitesse, and knowingly circumvente.d 
or knowingly failed to implement a system ofinternal-accounting controls at Vitesse subject to 
4-..., t•••• 
Section 13(b)(2)(A) ofthe Exchange Act [ls\is.c. f78m(b)(2)(A)]. 
173. 
By engaging in the conduct alle.ged above, Tomasetta, Hovanec, Mody, and 
Kaplan, directly 
or indirectly, falsified or caused to be falsified, books, records or accounts 
subject to 
15 U.S.C. § 78m(b)(2)(A). 
174. 
By reason ofthe foregoing, Tomasetta, Hovanec, Mody, and Kaplan, and each of 
them, directly or indirectly, have violated, and unless restrained and enjoined will continue to 
60
 

violate, Section 13(b)(5) ofthe Exchange Act and Exchange Act Rule 13b2-1 [15 U.S.c. § 
78m(b)(5); 17 C.F.R. § 240. 13b2-1 ] . 
FOURTH CLAIM FOR RELIEF 
Violations of Exchange Act Rule 13b2-2 
(Tomas
etta, Hovan~c, Mody; and Kaplan) 
175. The Commission realleges and incorporates by reference Paragraphs 1 through 
164. 
176. Rule 
13b2~2 ofthe Exchange Act [17 C.F.R. § 240. 13b2-2], in relevant part, 
makes 
it unlawful for an officer or director ofan issuer to, directly or indirectly: (1) make or 
cause to be made a materially false or misleading statement to an accountant in connection with 
any audit, review 
or examination 0 f financial statements, or the preparation or filing 0 f any 
document 
or report required to be filed with the Commission; or (2) omit or state, or cause 
another person to omit 
or state, any material fact necessary in order to make statements made, in 
light ofthe circumstances under which they were made, not misleading, to an accountant in 
connection with: (i) any -audit, review or examination ofthe financial statements ofthe issuer, or 
(ii) the preparation or filing ofany document or report required to be filed with the Commission. 
177. 
By reason ofthe foregoing, Tomasetta, Hovanec,Modyand Kaplan, and each of 
_them, directly or indirectly, violated,and unless restrained and enjoined will continue to violate, 
:i . .' 
. i':~' . ~ 
Exchange Act Rule 13b2-2 [17 C.F.R. § 240J}b2-2].... 
FIFTH CLAIM FOR-RELIEF 
- Violations of Exchange Act Section 14(a) and Exchange Act Rule 14a-9 
(Vitesse 
and Tomasetta) 
178. The Commission realleges and incorporates by reference Paragraphs 1_ through 
164. 
61 

· 179. Vitesse and Tomasetta, directly or indirectly, by use ofthe means or instruments 
ofinterstate commerce or ofthe mails, or ofthe facility ofa national securities exchange, 
knowingly, recklessly, 
or negligently solicited proxies by means ofa proxy statement, form of 
proxy, notice ofmeeting or other communica,tion, written or oral, containing statements which, 
at the time and in light 
ofthe circumstances under which they were made, were false and 
misleading with respect to material facts, or which omitted to state material facts which were 
necessary in order to make the statements made not false or misleading or which were necessary 
in order to correct statements in earlier false 
or misleading communications with respect to the 
solicitationofproxies for thesame meeting or subjectmatter, inviolation ofSection 14(a) ofthe 
Exchange Act and Exchange Act Rule 14a-9 [15 U.S.C. § 78n(a); 17 c.P.R. § 240.14a-9]. 
180. .By reason ofthe foregoing, Vitesseand Tomasetta, directly or indirectly, violated, 
andunlessrestrainedandenjoinedwillcontinuetoviolate, Section 14(a) 
oftheExchange Act 
and Exchange Act Rule 14a-9 [15 U.S.C. § 78n(a); 17 C.F.R. § 240.14a-9]. 
SIXTH CLAIM FORRELIEF
 
Vitesse's Violations of Exchange Act Sections 13(a) and
 
Exchange Act Rules 12b-20, 13a-1, and 13a-13,
 
and Aiding and Abetting These Violations
 
by Tomasetta, Hovanec, Mody, 
and Kaplan
 
181. The Commission realleges and incorporates by reference Paragraphs 1 through 
164. 
182. Section 13(a) 
ofthe Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 
13a-1 and 13a-13 [17 C.F.R. 
§§ 240.13a-l and 240.13a-13] require issuers ofregistered 
securities to file with the Commission factually accurate annual and quarterly reports. Exchange 
Act
Rule12b-20[17 C.P.R. §240.12b-20]furtherprovidesthat, inadditionto theinformation 
expressly required to be included in a statement 
or report, there shall be added such further 
62
 

material infonnation, ifany, as may be necessary to make the required statements, in the light of 
the circumstances under which they were made, not misleading. 
183. 
By engaging in the conduct set forth above, Vitesse violated, and unless restrained 
and enjoined will coritinue to violate Section 13(a) 
ofthe Exchange Act [15 U.S.C. § 78m(a)] 
and Exchange Act Rules 12b-20,13a-l and 13a-13 [17 C.F.R. 
§§ 240.12b-20, 240.13a-l, and 
240. 13a-13]. 
. 184. 
By engaging in the conduct set forth above, Tomasetta, Hovanec, Mody, and
 
Kaplan, and each 
ofthem, knowingly provided substantial assistance to Vitesse in its failure to
 
file 
with Commission factually accurate annual and quarterly reports.
 
185. As set forth above, Tomasetta, Hovanec, Mody, and Kaplan aided and abetted,
 
an4 unless restrained and enjoined will continue to aid and abet, violations 
ofExchange Act
 
Section 13(a) [15 U.S.C. 
§ 78m(a)] and Exchange Act Rules 12b-20, 13a-l and 13a-13 [17
 
C.F.R. 
§§ 240. 12b-20, 240.13a-l, and 240.13a-13]. 
SEVENTH CLAIM FOR RELIEF 
Vitesse's Violations ofExchange Act Sections 13(b)(2)(A) and 13(b)(2)(B)
 
and Aiding and Abetting These Violations
 
byTomasetta, Hovanec, Mody, and Kaplan
 
186. The Comrn:ission realleges and incorporates by reference Paragraphs 1 through 
.'
164. 
....... 
~
 
187. Section 13(b)(2)(A) ofthe Exchange Act [15 U.S.C. § 78m(b)(2)(A)] requires
 
issuers to make and keep books, records, and accounts which, in reasonable detail, accurately
 
. and fairly reflect the transactions and dispositions 
ofits assets. Section 13(b)(2)(B) ofthe 
Exchange Act [15 U.S.C. § 78in(b)(2)(B)] requires issuers to devise and maintain a system of 
internal accounting controls sufficient to provide reasonable assurances that transactions were 
63
 

recorded as necessary to pennit preparation offinancial statements in conformity with GAAP
 
and to maintain the accountability 
ofassetS.
 
188. Vitesse failed: 1) to make and keep books, records, and accounts which, in 
reasonable detail, accurately and fairly reflect the transactions and dispositions ofits assets; and 
2) to devise and maintain a system 
ofinternal accounting controls sufficient to provide 
reasonable assurances that transactions were recorded as necessary to pennit preparation of 
financial statements in confonnity with GAAP and to maintain the accountability ofassets. 
189. By reason ofthe foregoing, Vitesse, directly or indirectly, violated, and unless 
. restrained and enjoined will continue to violate Sections 13(b)(2)(A) and 13(b)(2)(B) ofthe 
Exchange Act [15 U.S.c. §§ 78m(b)(2)(A) and 78m(b)(2)(B)]. 
190. 
By reason ofthe foregoing, Tomasetta, Hovanec, Mody, and Kaplan knowIngly 
or recklessly gave substantial assistance to Vitesse in its failure to make and keep accurate 
books, records, and accounts and its failure to devise and maintain a sufficient system 
ofinternal 
accounting controls. 
191. As set forth above, defendants Tomasetta, Hovanec, Mody, and Kaplan, and each 
ofthem, directly or indirectly, aided and abetted, and unless restrained and enjoined will 
continue 
to aid and abet, violations ofSections 13(b)(2)(A) and 13(b)(2)(B) [15 U.S.C. §§ 
78m(b)(2)(A) and 78m(b)(2)(B)]. .i. 
'.-> 
f":··· -) 
-
EIGHTH CLAIM FOR RELIEF 
Violations ofExchange Act Rule 13a-14 
(Tomasetta, Hovanec, 
and Mody) 
192. The Commission realleges and incorporates 
by reference Paragraphs 1· through 
164. 
64 

193. Tomasetta, as CEO, signed false certifications pursuant to Rule 13a-14 ofthe 
Exchange Act that were included in Vitesse's fiscal 2002, 2003, 2004, and 2005 annual reports, 
as well as ten quarterly reports 
on Fonn 10-Q filed between February 14, 2003 through February 
8,2006. Hovanec, as CFO, signed false certifications pursuant to Rule 13a-14 
ofthe Exchange 
Act that were included in Vitesse's fiscal 2002, 2003, and 2004 annual reports, as well 
as seven 
quarterly reports 
on Fonn 10-Q filed between Febniary 14, 2003 through February 8,2005. 
Mody, as CFO,signed false certifications pursuant to Rule 13a-14 
ofthe Exchange Act that were 
included in Vitesse's fiscal 2005 annual repQrt, as well as quarterly reports three quarterly 
reports on 
Fonn 10-Q filed between May 10, 2005 through February 8, 2006. . 
.194. 
By reason ofthe foregoing, Tomasetta, Hovanec, and Mody, and each ofthem, 
violated, and unless restrained and enjoined will·continue to violate, Exchange Act Rule 13a-14 
[17 C.F.R 
§ 240. 13a-14]. 
NINTH CLAIM FOR RELIEF
 
Violations of Exchange Act Section 16(a) and Exchange Act Rule 16a-3
 
(Tomasetta and Hovanec)
 
195. The Commission realleges and incorporates by reference Paragraphs 1 through 
164. 
196. At all relevant times, defendants Tomasetta and Hovanec were officers ofVitesse 
:i. . '.-:­
..' ~ . ;. 
withinthemeaning ofSection16(a)(1) oftheExchange Act[15u.s.c. §78p(a){I)]. 
197. Section 16(a) 
ofthe Exchange Act [15 U.S.C. § 78p(a)] and Exchange Act Rule 
16a-3 [17C.F.R. 
§240.16a-3]requireofficers, directors andbeneficialowners ofmore thanten 
percent
ofanyclass ofequitysecurityregistered pursuanttoExchangeAct Section 12[15U.S.c. 
§ 781] to file periodic reports disclosing any change ofbeneficial ownership ofthose securities. 
65
 

198. Defendants Tomasetta and Hovanec filed Forms 4 with the Commission that 
misrepresented the purported grant dates ofbackdated options that they received. 
199. 
By reason ofthe foregoing, defendants Tomasetta and Hovanec, and each of 
them, violated, and unless restrained and enjoined will continue to violate, Section 16(a) ofthe 
Exchange Act and Exchange Act Rule 16a-3 [15 U.S.C. 
§ 78p(a); 17 C.F.R § 240.16a-3]. 
PRAYER FOR RELIEF 
WHEREFORE, the Commission respectfully requests that the Court enter a final judgment: 
I.. 
Permanently enjoining defendant Vitesse from violating, directly or indirectly, Section 
17(a) 
ofthe Securities Act and Sections 10(b), 13(a), 13(b)~2)(A), 13(b)(2)(B), and 14(a) ofthe 
Exchange Act and Rules 10b-5, 12b-20,  13a-1, 13a-13, and 14a-9 thereunder; 
ll. 
Permanently enjoining defendant Tomasetta from violating, directly or indirectly, Section.· 
17(a)
oftheSecurities Actand Sections 1O(b), 13(b)(5), 14(a),and 16(a) oftheExchangeAct 
and Rules IOb-5, 13b2-1,  13b2-2, 13a-14, 14a-9, and 16a-J thereunder, and from aiding and 
abettingviolations 
ofSections13(a),13(b)(2)(A),and 13(b)(2)(B) oftheExchangeActand 
Rules 12b-20, 13a-1, and 13a-13thereunder; 
IlL 
. i-:~' ., 
Permanently enjoining defendant Hov~ec from violating, directly or indirectly, Section 
17(a) 
ofthe Securities Act and Sections 1O(b), 13(b)(5), and 16(a) ofthe Exchange Act and 
Rules 10b-5, 13a-14, 13b2-1,  13b2-2, and 16a-3 thereunder, and from aiding and abetting 
violations 
ofSections 13(a), 13(b)(2)(A), and 13(b)(2)(B) ofthe Exchange Act and Rules 12b-. 
20, 13a-l, and 13a-13 thereunder; 
66 

IV.
 
Pennanently enjoining defendant Mody from violating, directly or indirectly, Section 
17(a)
oftheSecuritiesActandSectionsIO(b)and13(b)(5) oftheExchangeActandRules lOb­
5, 13a-14, 13b2-l, and 13b2-2 thereunder, and 
fro.m aiding and abetting violations ofSections 
13(a), 13(b)(2)(A), and 13(b)(2)(B) 
ofthe Exchange Act and Rules l2b-20, 13a-l, and 13a-13 
thereunder; 
v. 
Pennanently enjoining defendant Kaplan from violating, directly or indirectly, Section 
l7(a) 
ofthe Securities Act and Sections lO(b) and l3(b)(5) ofthe Exchange Act and Rules lOb­
5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations 
ofSections 13(a), 
13(b)(2)(A), and 13(b)(2)(B) 
ofthe Exchange Act and Rules l2b-20, 13a-l, and 13a-13 
thereunder; 
VI. 
Ordering defendants Tomasetta, Hovanec, Modyand Kaplan, and each ofthem, to 
disgorge their ill-gotten gains by virtue 
ofthe conduct alleged herein, and to pay prejudgment 
interest thereon; 
VII. 
Ordering defendants Tomasetta, Hova,nec,·Mody and Kaplan, and each ofthem; to pay 
_.J ..~ 
civil money penalties pursuant to Section 20(d)(I) ofthe Securities Act and Section 21(d)(3) of 
the Exchange Act [15 U.S.C. § 77(d)(I); 15 U.S.C. § 78u(d)(3)]; 
67
 

. VIII. 
Pursuant to Section 21 (d)(2)ofthe Exchange Act [15 U.S.C. § 78u(d)(2)] bar defendants 
Tomasetta, Hovanec, and Mody, and each 
ofthem, from serving as officers or directors ofany 
issuerthat 
hasa class ofsecuritiesregisteredpursuantto Section 12oftheExchangeActfl5 
U.S.C. § 781] or that is  required to file reports pursuant to Section 15(d) ofthe Exchange Act [15 
U.S.C. § 780(d)]; and 
IX. 
Ordering such other relief as the Court deems just and proper. 
DEMAND FOR JURY TRIAL 
Under Rule 38 ofthe FederalRules ofCivilProcedure, the Commissiondemands trialby 
jury in this actionofallissues so triable. 
Dated: December 
9,2010 
Respectfully submitted,
 
Washington, DC
 
Dean 
M. Conwa 
Richard 
E. Simpson RS-5859 
SECURlTIESAND EXCHANGE COMMISSION 
100 F Street, NE 
Washington, DC 20549-4030 
. 
Telephone: (202) 551-4412 (Conway) 
Facsimile: (202) 772-9246 (Conway) 
E-mail:' [email protected] 
:i .
.....;, 
<C.ounselfor Plaintiff 
Ofcounsel: 
TimothyN. England 
. Margaret 
S. McGuire 
Deborah 
R Maisel 
Richard 
E. Dominguez 
68
 

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 

SECURITIES AND EXCHANGE COMMISSION, 

Plaintiff: 

v. 

VITESSE SEMICONDUCTOR CORPORATION, 
LOUIS R. TOMASETTA, EUGENE F. HOVANEC, 

1/\· eN-a') 3 9
 No~ Ci . V';::; ..
 

COMPLAINT AND ~~~/';::
 
JURY DEMAND /:f 

YATIN D. MODY, AND NICOLE R. KAPLAN 

Defendants. 

SUMMARY 

1. During the period in or about 1995tbroughApri12006, defendant Vitesse 

Semiconductor Corporation (''Vitesse'' or the "Company") engaged in fraudulent revenue 

recognition practices and stock options backdating misconduct. This fraud was orchestrated by 

certain ofVitesse's most senior fonner executives. 

2. Starting in or about September 2001 and not ending until April 2006, Vitesse 

engaged in an elaborate channel stuffing scheme in order to improperly record revenue on 
...4-·--: 

product shipments. Defendants Louis R. Tom-asetta ("Tomasetta"), co-founder and former Chief 

Executive Officer ("CEO") and director ofVitesse, Eugene F. Hovanec ("Hovanec"), former 

ChiefFinancial Officer ("CFO") and Executive Vice-President ofVitesse, Yatin Mody, former 

Controller and CFO, and Nicole Kaplan, former Manager and Director ofFinance ofVitesse, 

each knowingly played a significant role in the Company's execution ofthis fraud. Specifically, 

Tomasetta, Hovanec, Modyand Kaplan caused the Company to immediately recognize revenue 



and record invalid accounts receivable for product shipped at period end to its largest distributor, 

Nu Horizons Electronics Corporation, even though it had an unconditional right to return all of 

the product. The right ofreturn was accomplished through undisclosed side letters and oral 

agreements. The effect ofthis fraud was to materially inflate the revenue that the Company 

reported in its financial statements in 14 quarters from September 2001 through early 2006. 

3. Tomasetta, Hovanec, Mody and Kaplan compounded their fraudulent revenue 

recognition practices by failing to timely record credits that were generated by Nu Horizons' 

return ofproduct tied to the invalid accounts receivable. 

4. In order to conceal the true age of the accounts receivable created by the failure to 

timely record credits from the Company's external auditor ("Auditor"), Hovanec and Kaplan 

then directed that cash receipts received by Vitesse from Nu Horizons and other customers be 

misapplied to these aged invalid receivables. Some ofthe cash received from Nu Horizons, in. 

the form ofprepayments, was used to camouflage the aged receivables. Hovanec personally 

negotiated the amount ofthese prepayments. 

5. From 1995 to 2006, Tomasetta and Hovanec also engaged in a scheme to 

backdate stock option grant dates for their personal benefit and the benefit ofother Vitesse 

executives and employees, Tomasetta and Hovanec intentionally selected grant dates that were 

days, weeks, and months in the past. Tomas~t4tand Hovanec used option grant dates that were 

different from the dates on which Vitesse's Compensation Committee had actually approved and 

granted the options. Tomasetta and Hovanec disregarded the Compensation Committee's 
r· 

approval dates because they wanted to pick trading dates for the grants that coincided with low 

points in the Company~s stock price. Those favorable prices were used as the exercise prices for 

2
 



the options. Tomasetta and Hovanec also used hindsight to reprice option grants as Vitesse's 

stock price declined. 

.6. In total, Tomasetta and Hovanec backdated or repriced 40 option grants to 

thousands ofemployees. These options represented over 60% ofthe total options that ViteSse 

awarded from 1995 to 2006 to newly hired and existing employees and officers. Tomasetta and 

Hovanec collectively reaped millions ofdollars in illicit profits from exercising backdated 

options. Despite representing in Vitesse's periodic filings made with the Commission that the 

Company did not grant in-the-money options and complied with applicable accounting rules, 

Tomasetfa and Hovanec intentionally manipulated grant dates in order to award in-the-money 

options and failed to ensure that Vitesse properly recorded compensation expenses for the 

backdated grants. As a result of the backdating, Vitesse failed to record approximately $184 

million in compensation expense, overstating its pretax income or understating its pretax loss by 

as much as 45% annually for its fiscal years 1996 through 2005. 

7. In addition, after the Wall Street Journal (''Journal'') questioned Vitesse in 

November 2005 about the legitiniacyofits option granting practices, Tomasetta and Hovanec 

engaged in a cover up to hide some oftheir prior option backdating misconduct. Between 

November 2005 and April 2006, Tomasetta and Hovanec lied to Vitesseboardmembers and to 

Vitesse's Auditor by falsely telling them that..wtoption grants were proper and correctly 
. z" 

accounted for in the Company's books. 

8. In furtherance oftheir cover-up, Tomasetta and Hovanec also fabricated minutes 

oftwo non-existent 2001 meetings during which Vitesse's Compensation Committee purportedly. 

granted stock options•. Tomasetta and Hovanec inserted these fabricated minutes into the stock 

option administrator's computer and turned back the clock on the computer thereby creating the 

3
 



false appearance that the minutes had been written at the same time as when the purported 

meetings occurred. During an interview ofTomasetta by Vitesse's attorneys, who had begun an 

internal investigation; Tomasetta admitted to these lawyers that he had told Hovanec and Mody 

that this conduct "is the Martha Stewart thing, this is dumb, we need to stop - we're going to go 

to jail." 

9. Tomasetta also inserted the dates ofthese two fictional meetings into his Palm 

Pilot thereby creating the fayade that these two phantom meetings had actually happened. 

Additionally, on or about December 2005, Hovanec directed his assistant to create a third set of 

fabricated Compensation Committee meeting minutes to falsely substantiate another backdated 

grant date from 2003. 

10. Based on its conduct, Vitesse engaged in acts, practices and courses ofbusiness 

that violated Section 17(a) ofthe Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)], 

Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 

1934 ("Exchange ACt") [15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B), 78n(a)] 

and Exchange Act Rules IOb-5, 13a-l, 13a-13, 12b-20, and Rule 14a-9 [17 C.F.R. §§ 240.lOb-5, 

240.13a-l, 240.13a~13, 240.12b-20, 240.l4a-9]. 

11. Based on their conduct, defendants Tomasetta and Hovanec each engaged in acts, 

practices and courses ofbusiness that violate(l~ection 17(a) ofthe Securities Act[15 U.S.C. § 
. ' i~,~ 

o' 

77q(a)], Sections 1O(b), 13(b)(5), and 16(a), and ofthe Exchange Act [15 U.S.C. §§ 78j(b), 

78m(b)(5), and 78p(a),] and Exchange Act Rules 1Ob-5, 13a~14, 13b2-1; 13b2-2, and 16a-3 [17 

C.F.R. §§ 240.lOb-5, 240.13a-14, 240.13b2-1, 240.13b2-2, and 240. 16a-3]. Tomasetta also 

violated Section 14(a) ofthe Exchange Act [15 U.s.C. § 78n(a)] and Rule 14a-9 thereunder [17 

C.F.R. § 240.14a-9]. 

4 



12. Based on their misconduct, defendants Mody and Kaplan engaged in acts, 

practices and courses ofbusiness that violated Section 17(a) of the Securities Act [15 U.S.C. § 

77q(a)], Sections 10(b) and 13(b)(5) ofthe Exchange Act [15 U.S.C. §§ 78j(b) and 78m(b)(5)], 

and Exchange Act Rules 10b-5, 13b2-l, and 13b2-2 [17 C.F.R. §§ 240. 1Ob-5, 240.13b2-l, and 

240.l3b2-2]. Mody also violated Exchange Act Rule 13a-14 [17 C.F.R. § 240.13a-14]. 

13. In addition, ~omasetta, Hovanec, Mody, and Kaplan each aided and abetted 

Vitesse's violations ofExchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) [15 U.S.C. §§ 

78m(a), 78m(b)(2)(A), and 78m(b)(2)(B)] and Exchange Act Rules l2b-20, 13a-l and 13a-13 

[17 C.F.R. §§ 240.13b-20, 240.13a-l and 240.13a-13]. 

14. Unless enjoined, defendants Vitesse, Tomasetta, Hovanec, Mody and Kaplan are 

likely to commit such violations in the future. Vitesse, Tomasetta, Hovanec, Mody and Kaplan 

should be permanently enjoined from doing so. In addition, defendants Tomasetta, Hovanec, 

Mody and Kaplan should be ordered to disgorge ariy ill-gotten gains or benefits derived as a 

result of these violations and prejudgment interest thereon, and be ordered to pay civil monetary 

penalties. Further, defendants Tomasetta, Hovanec, and Mody respectively should be prohibited 

from acting as an officer or director ofany issuer that has a class ofsecurities registered pursuant 

to Exchange Act Section 12 [15 U.S;C. § 781] or that is required to file reports pursuant to 

..Exchange Act Section 15(d) [15 U.S.C. § 789(4)]. '.> 

JURISDICTION AND VENUE 

15. The Court has jurisdictionover this action pursuant to' Sections 20(b) and 22(a) of 

the Securities Act [15 U.S.C. §§ 77t(b) and 77v(a)] and Sections 2l(d), 2l(e) and 27 ofthe 

Exchange Act [15 U.S.c. §§ 78u(d), 78u(e), and 78aa]. The defendants, directly or indirectly, 

have made use ofthe means and instrumentalities of interstate commerce, ofthe mails, or ofthe 

5
 



facilities ofa national securities exchange in connection with the acts, transactions, practices and 

courses ofbusiness alleged in this Complaint. 

16. Venue is proper pursuant to Section 22 ofthe Securities Act [15 U.S.c. § 77v] 

and Section 27 ofthe Exchange Act [15 U.S.C. § 78aa] because certain of the acts alleged herein 

constitutmg violations ofthe Securities Act and the Exchange Act occurred in this District, 

including trading in the shares ofVitesse on the Nasdaq National Market and because certain 

shareholders ofVitesse were located in this District. 

DEFENDANTS 

17. . Vitesse Semiconductor Corporation is a major producer ofhigh-performance 

integrated circuits for use primarily by systems manufacturers in the storage and communications 

industries. Vitesse was incorporated in Delaware in 1987, is headquartered in Camarillo, 

California, and maintains a September 30th fiscal year-end. Vitesse's quarters respectively end 

on December 31 st, March 31 st, June 30th
, and September 30th

• During the relevant period, the 

Company's common stock was registered with the Commission pursuant to Section 12(g) of the 

.Exchange Act and traded on the Nasdaq National Marketunder the symbol VTSS. The 

Company's common stock is currently traded on the Pink Sheet System ofQuotation under the 

symbol ''VTSS.PK.'' 

18. .Vitesse was unable to restate itsthistorical financial statements to reflect the 
. ;" . 

impact ofthe miscoI1duct described in this Complaint. In September 2008, in its first periodic 

report filed with the Commission after discovering the fraud, Vitesse filed a Form 10-K for its 

fiscal years ended·September 30,2006 and 2007. Although its fiscal 2006 financial statements 

contain one restated quarter (the first quarter of2006), Vitesse reported that it was unable to 

restate its financial statements prior to September 30, 2005, or estimate the financial impact of 

6
 



the improper accounting and sale practices, because it could not rely on poor or non-existent 

accounting records and because key accounting controls were circumvented by management or 

did not exist. Vitesse included in this filing a "stock options restatement" ("Stock Options 

Restatement"), which recorded $268 million ofadjustments for unrecorded compensation 

expenses from the Company's inception in 1987 through 2005. The Company's Form 10-K 

disclosed that its inability to provide audited financial statements for fiscal years prior to 2006 

meant that it was not current in its Exchange Act reporting obligations. As set forth below, 

Tomasetta, Hovanec, Modyand Kaplan had all ceased working at Vitesse by May 2006. 

19. Louis R. Tomasetta, age 62, is a resident ofOJai, California. Tomasetta co­

founded Vitesse in 1987. From 1987 until May of2006, Tomasetta served as President, Chief 

Executive Officer, and as a Director ofthe Company; Tomasetta took the Company public in 

December 1991. On May 17, 2006, the Board ofDirectors ofVitesse terminated Tomasetta 

because ofconcerns regarding the integrity ofdocuments evidencing the Company's stock 

.option grant practices.	 In testimony during the Commission's investigation in this matter, 

Tomasetta asserted his Fifth Amendment privilege against self-incrimination. 

20. Eugene F. Hovanec, age 59, is a resident ofWestlake Village, California. 

Hovanec became licensed as a Certified Public Accountant ("CPA") in 1976 in New York. His 

current license expires in 2011. At Vitesse, 1j:".ofuDecember 1993 through April 2005, Hovanec 
. .	 .! . .~ 

'.'-;. 

served as Vice President ofFinance and ChiefFinancial Officer~ In April 2005, Ilovanec was 

named Executive Vice President, relinquishing his role as CFO to Yatin Mody. Hovanec served 

as Executive Vice President until May 17, 2006 when he was terminated by the Board of 

Directors due to concerns regarding the integrity ofdocuments evidencing the Company's stock 

7
 



--

. . 

option grant practices. In testimony during the Commission's investigation in this matter, 

Hovanec asserted his Fifth Amendment privilege against self.,.incrimmation. 

21. During histenun~ at Vitesse, Hovanec also served from 1994 through 2007 as a 

director at Interlink Electronics, Inc., a u.S.. public company. He served on both Interlink's' 

Audit Committee and Compensation Committee throughout these years: For Interlink's fiscal 

years 2003 through 2006, Interlink's Board ofDirectors detennined and disclosed that Hovanec' 

was an audit committee financial expert. within the meaning ofthe Commission rule promulgated 

under Section 407 ofthe Sarbanes-Oxley Act of2002, Item 401(h) ofRegUlation S~K. 

. ­
22;' From 1989 to 1993, H.ovanec served as Vice PresidentFinance&Administration, 

. . 

ChiefFinancial Officer, and Corporate Secretary and Treasurer at publically traded Digital 

Sound Corporation. Prior to that, from 1984 through 1989, he served as Vice President, 

Controller and Corporate Controller at Micropolis Corporation, a private company. From 1980 . 

thr6:ugh 1984, Hovanec was a Division Controller at Eocom Electronic Systems, a division of 

Hoechst CelarieseCorporation, and from 1976 through 1980, Hovanec's title was Corporate 

SpecialProjects at Hoechst Celanese Corporation, a German public company not listed in the 

. United States. From 1972 ~til 1976, Hovanec worked as a senior accountant at Arthur 

Andersen in New York. 

23. YatiJi D. Mody,. age 47, is a r~iPent ofWest1ak~ Village, California. Mody 
~~ . 

began work at Vitesse in 1992and ~eived as Controller from 1993 through November 1998, at 

which time he was promoted toVice President and Controller. Mody's job title changed slightly 

in 2007 to Vice President, Finance and Controller. In Apri12005, he was promoted to Chief 

Financial Officer and thereafter served as Vice President, Finance and ChiefFinancial Officer. 

OnMay 17, 2006, the Board tenninated Modydue to concerns regarding the integrity of 

8
 



documents evidencing the Company's stock option grant practices. Mody is a licensed CPA. He 

obtained a California CPA license in November 1990; his license is currently inactive and is set· 

to expire. on March 31,2011. Prior to his work at Vitesse, Mody worked as an auditor at 

Deloitte& Touche. 

24. Nicole R. Kaplan, age 39~ is a resident ofAgoura Hills, California. Kaplan 

began work at Vitesse in 1998 as Manager ofFinance, and in 2004 she became Director of 

Finance. Kaplan obtained a California CPA license in 1996; her license expired in February 
. . 

2005 and the California Board ofAccountancy identifies her license as ca.t:iceled. Prior to 

working at Vitesse, Kaplan was employed as an auditor with KPMG LLP for approximately four 

years. Kaplan was a member ofthe audit team with the Auditor that conducted theJ995 and. 

1996 audits ofVitesse's financial statements. In the fall of2005, Kaplan left Vitesse on . 

maternity leave. Kaplan officially resigned :from Vitesse onApril14, 2006. 

RELATED ENTITY 

25. Nu Horizons Electronics Corporation ("Nu Horizons") is a public company 

incorporated in Delaware and located in New York. Nu Horizons and its subsidiaries are 

engaged in the distribution ot: and provide supply chain services for, high technology electronic 

cOmponents•. Since mid-200l ,Nu Horizons has been, and continues to be, the exclusive North 

American distributor for Vitesseproducts. Opring the relevant period, the company's common 
.- .. : ...... 

stock was registered with the Commission pursuant to Section 12(g) ofthe Exchange Act and 

traded on· the Nasdaq National Market under the symbol NUHC. 

9
 



- - -

FACTS
 

A.	 IMPROPER REVENUE RECOGNITION 

26. Like many semiconductor companies, Vitesse was part ofthe technology bubble 

that burst in 2000. Despite reporting over $28 million ofnet income for fiscal year 2000, Vitesse 

posted both a loss from operations and a net loss in each fiscal year from 2001 through 2005. 

The company's losses from operations during this period ranged from approximately $33 million 

.. to as much as $167 million. During this time, the amount ofrevenue Vitesse reported each 

period became an increasingly important measure of the Company's perceived health. As such, 

Tomasetta, Hovanec, Mody, arid Kaplan orchestrated a multi-year fraudulent scheme to give 

investors the false impression that Vitesse'srevenues were better than they were in reality. From 

at least September 2001 through Apri12006, Tomasetta, Hovanec, Mody and Kaplan engaged iil 

a wide array of fraudulent accounting practices tointlate reported revenue. 

1.	 The Relevant GAAP Revenue Recognition Criteria
 
And Vitesse's Disclosures
 

27. .' Under Generally Accepted Accounting Principles ("GAAP"), revenue is generally 

recognized when it is realized or realizable and earned. Revenue is considered earned when a 

company has substantially accomplished what it must do to be entitled to the benefits represented

by the revenues. These two conditions, realized and earned, are ordinarily met by the time the 
,.,t·.~· . .-. ~.':' 

product is delivered to customers. When a right ofreturn exists, GAAP requires that certain 

conditions be met before a company can recognize revenue. The required conditions include that 

the buyer's obligation to pay the seller is not contingent on r~ale ofthe product and that a 

company be able to reasonably forecast the amount ofproduct returns. GAAP presumes that 

when the return period is long, a company cannotreasonably forecast product returns, and thus 

revenue recognition is generally precluded. GAAP also presumes that when the product is 

10
 



-susceptible to significant external factors, such as technological obsolescence or changes in 

demand, a company is unable to forecast product returns, and thus revenue recognition is 

precluded. 

28. In each ofits annual reports filed on Forms 10-K up to and including its 2001 

Form 10-K, Vitesse disclosed its revenue recognition policy as a policy where "production 

revenue is recognized when products are shipped to customers, which is when title and riSk of 

loss transfers to the customer." Beginning in 2002, and continuing through 2005, Vitesse 

disclosed that its ''production revenue is recognized when persuasive evidence ofan arrangement 

exists, the sales price is fixed, products' are shipped to customers, which is when title and risk of 

loss transfers to the customer, and collectability is reasonably assured.". This language is similar 

to the language ofStaffAccounting Bulletin ("SAB") 101, which Vitesse adopted in the fourth 

quarter of its 2001 fiscal year. 

.2. Vitesse Improperly RecogniZed Revenue upon Shipment 
Of Product to Nu Horizons from 2001 to 2006 

29. In August of2001, Tomasetta and Hovanec, among others, engaged in 

discussions with Nu Horizons concerning the execution ofa product distribution agreement 

between the two companies. After several weeks ofnegotiations, Vitesse and Nu Horizons 

executed an Authorized Preferred Distributor Agreement ("Distribution Agreement"). Under the 
.~...f .' 

Distribution Agreement, Vitesse was to shipto;Nu Honzons certain product for which Vitesse 

had already identified customer demand. Vitesse actually shipped, however, whatever product it 

had manufactured without any cOnsideration for Nu Horizons' existing or forecasted demand. 

Vitesse, moreover, granted NuHorizons an unfettered right ofretum on this inventory. From 

September 2001 through April 2006, Vitesse routinely used its re1ationshipwith Nu Horizons to 

11
 



wrongly record revenue on such shipments and correspondingly failed to reduce revenue and 

accounts receivable when product was returned. 

30. Vitesse did not disclose in its periodic filings made with the Commission the 

existence ofthe Distribution Agreement with Nu Horizons until more than 15 months after the 

relationship began. In fact, Vitesse did not disclose the distributor relationship with Nu Horizons 

until December 2002 when it filed its Form 10-K for the fiscal year 2002 with the Commission. 

The Company's 2002 Form 10-K stated that "certain ofthe Company's production revenue are 

made to a major distrihutor under an agreement allowing for price protection and right of return 

on products unsold. Accordingly, the Company defers recognition ofrevenue on such products 

until the products are sold by the distributor to the end user." This practice was commonly 

referred to as a "sell-through" model. Similar language appears in each Form 10-K filed by 

Vitesse with the Commission through December 2005. 

31. In or about September 2001, Vitesse management, including Tomasetta and 

Hovanec, intentionally withheld information about the Distribution Agreement with Nu Horizons 
~ . 

from its Auditor. When Vitesse finally disclosed information about the Distributor Agreement in 

its 2002 Form 10-K, it did so in the form ofa misrepresentation. Vitesse falsely informed 

investors that it "defers recognition ofrevenue on such products [shipped to the distrihutor] until 

such products are sold by the distributor to th~ end user." '.': .
• ,I' __ 

a. The September 2001 Imtial Stocking Package 

32. The Distribution Agreement with Nu Horizons contained an undisclosed side 

letter that included purchase orders and unconditional return rights referred to as the initial 

stocking package ("ISP"). At the beginning ofthe agreement in 2001, Hovanec suggested to the 

President ofNu Horizons that the dollar amount ofthe ISP be approximately $40 million. The 

12
 



Vitesse side letter explicitly granted Nu Honzons "the right to a one time credit and return for all 

unsold products against" the ISP. Hovanec knew ofthe existence ofthis side letter. 

33. Because Nu Horizons had an unconditional right to return all the product from the 

ISP, the risk ofloss on the ISP inventorynever passed from Vitesse to Nu Horizons. In fact, Nu 

Horizons began returning ISP inventory almost as soonas.it was received and continued 

returning product as many as18 months after shipment. Notably, in February 2002 alone, Nu . 

Horizons returned nearly $8.2 inillion ofISP inventory to Vitesse. 

34. On November 18, 2002, approximately 13 and ~ months after Vitesse had 

already recognized the ISP revenue, Nu Horizons returned more than $2 million ofISP . 

inventory. Tomasetta personallY approved Nu Horizons' return ofmore than $2 mlliion 0 f ISP 

inventory in November 2002. 

35. . At September 30, 2001, Vitesse had already improperly recorded approximately 

$40 million ofrevenue from the ISP even thoughNu Horizons had sold to end-use customers 

only $425,000 ofISP inventory. As a result ofVitesse's recognition ofthe entire ISP as revenue 

in fiscal year 2001, it had overstated its revenue by approximately $40 million. 

36. The ISP transaction represented 10.4% ofVitesse's 2001 reported revenue of 

$384 million:, and 108% of its reported fourth quarter 2001 revenue of$37 million. The 

additionalrevenue provided by the ISP alsoaJJ~wed Vitesse to record $34 million in old 
. i~ 

-
unrecorded credits in.the fourth quarter of2001. The fraud related to unrecorded credits is fully 

alleged in ~~ 42-46. 

b.	 The 2002 through 2006 Quarterly Stocking Packages 
With Nu Horizons 

37. Near the.end ofeach quarter, beginning on or about December 2002~ Vitesse 

routinely shipped large amounts ofinventory to Nu Horizons. As the close ofeach quarter 

13
 



approached, Tomasetta and Hovanec directed Vitesse employees to ship product to Nu Horizons 

in order to close the gap between Tomasetta's internally forecasted revenue target and Vitesse's 

actual quarterly revenue. During weekly revenue meetings, Tomasetta and Hovanec instructed 

members ofthesales staffto maximize the amount ofinventory Vitesse shipped to Nu Horizons. 

Tomasetta, Hovanec, Mody, Kaplan and others then discussed in smaller, closed-door meetings, 

specific product shipments to Nu Horizons that would be made in order to close the revenue gap 

identified by Tomasetta and Hovanec. The defendants sometimes referred to these quarterly 

shipments as quarterly stocking packages ("QSPs"). 

38.. At the outset ofthe QSPs, it was common practice to include a side letter that 

gave Nu Horizon's an ''unfettered right" to return all inventory within six months ofthe date of 

the QSP. 

39. Beginning in 2004, Vitesse and Nu Horizons ceased documenting this return 

arrangement with side letters. Instead, Vitesse and Nu Horizons relied on "handshake" 

agreements between Hovanec and a Nu Horizons executive: This change corresponded with 

Hovanec's increased involvement in the negotiation ofthe QSPs. Beginning at least as early as 

2004, Hovanec made quarterly visits to Nu Horizons in order to negotiate the QSPs,which often 

occurred in New York City. In total, Vitesse entered into QSPs with Nu Horizons for 15 of 16 

quarters between March 2002 and March 200Q~ A summary ofthe QSPs appears in the 
i~ . 

following table. 

Month 
Vitesse 
Quarter 

Mar 2002 2Q02 

Mar 2003 2Q03 

Stocking Package
 
Amount
 

$ 942,464 

$ 871,645 

Reported·Quarterly 
. Revenue 

Stocking 
Package as % 
ofReported 

Revenue 

% ofStocking 
Package Inventory 

Ultimately 
Returned to Vitesse 

$42,089,000 2.2% 0% 

$40,172,000 2.2% 0% 

14
 



Iun 2003 3Q03 $ 6,608,657 $39,738,000 16~6% 10% 

Sept2003 4Q03 $ 3,578,832 $38,249,000 9.4% 5% 

Dec 2003 1Q04 $ 7,613,422 $50,312,000 15.1% 12% 

Mar 2004 2004 $ 9,176,108 $56,034,000 16.4% 12% 

Iun 2004 3Q04 $22,503,570 $60,417,000 37.3% 45% 

Sep 2004 4Q04 $21;509,965 $52,012,000 41.4% 44% 

Dec 2004 1Q05 $16,958,239 $44,459,000 38.1% 25% 

Mar 2005 2Q05 $17,075,076 $47,158,000 36.2% 10% 

Iun 2005 3Q05 $16,038,692 $50,971,000 31.5% 9% 

Sep 2005 4005. $17,021,809 $48,190,000 35.3% 12% 

. Dec 2005 1Q06 $14,487,474 $53,011,000 27.3% 8% 

Mar 2006 2Q06 $21,247,217 No filing made ----­ 13% 

40. The target amount for each QSP was first deterrilined by Hovanec and then 

discussed with Tomasetta. After that the final dollar amount was communicated to Kaplan who 

worked on assembling the necessary inventory mix for the QSP to match its dollar amount. 

Often times, Vitesse, through Hovanec, Kaplan, and top sales managers, pressured Nu Horizons 

into taking product that it neither wanted nor thought it could sell. 

41. TOmaSetta, Hovanec, Mody, and Kaplan knew that immediately recognizing 

revenue from the ISP and the QSPs violated GAAP because ofNu Horizons' unconditional right 
oS- .' '.':' 

to retum an ofthe product contained in the lS~ 'and QSPs to Vitesse. 

3. Vitesse's Failure to Record Credits for Returned Product 
. . . . . 

42. From 2001 to 2006, Tomasetta, Hovanec, Mody, and KaplaIi routinely instructed 

sales and finance staffto· delay recording credits on returned Vitesse product. Both Tomasetta 

and Hovanec knew that this delay in timely recording credits would cause revenue to be 

overstated. 

15 



43. Tomasetta instructed the finance staff to take fewer credits each quarter. Both he 

knew that this practice would result in revenue being inflated. In addition, Tomasetta and 

Hovanec agreed to ''bleed-out'' credits over time instead ofrecording credits in the proper 

periods.. Both Tomasetta and Hovanec knew this violated GAAP. 

44. In or~er for a customer to return,product to Vitesse, the Company had to first 

issue a Return Merchandise Authorization number ("RMA") to the customer. The customer was 

instructed to use the RMA when shipping product back to Vitesse; the RMA number was used 

by Vitesse to identify the corresponding customer credit. Vitesse's finance department needed to 

keep track ofthe large quantity ofreturns, but Tomasetta and Hovanec did not want the returns 

recorded in the Company's geIieralle<lger. Outside the Company's normal accounting system, 

the finance department maintained an Excel spreadsheet ofunrecorded credits organized by 

RMA. Tomasetta, Hovanec, Mody, and Kaplan knew ofthe existence ofthe Excel spreadsheet. 

The Auditor, however, did not have access to this Excel spreadsheet during its audit field work. 

45. The balance ofunrecorded customer credits was discussed during revenue 

meetings. Tomasetta and Hovanec did not allow any of the finance staff to record credits in the, 

ordinary course of the Company's business. Instead, the recordation ofcredits waS considered 

~ exceptional event that required approval by TQmasetta, Hovanec Qr Mody.. Tomasetta's 

message during revenlie meetings was to alwC}y~.''.avoidtaking the negative;" in other words, 
.1 . 

-
avoid recording credits in the current quarter and instead push the recording ofcredits offuntil a 

later period. 

46. For example, Tomasetta and Hovanec agreed to accept large returns from Nu 

Horizons on or about September or October 2004. At about that time, Hovanec directed a 

Vitesse employee to obtain blank RMA forms which later became RMA numbers 10001 and 

16
 



10002. In the first and second quarters of fiscal year 2005, Nu Horizons returned a total of$21.8 

million in product to Vitesse. These returns were authorized by Hovanec on out-of-sequence 

RMAs numbered 10001, 10002, and 10003. The defendants failed to record these credits in the 

periods that Nu Horizons returned the product as summarized below. 

Quarter 
RMA 10001 RMA 10002 RMA 10003 

Amount 
Returned 

Amount 
Credited 

Amount 
Returned 

Amount 
Credited 

Amount 
Returned 

Amount 
Credited 

lQ05 $5~000,000 $2,940,000 $7,000,000 
2Q05 $668,917 $2,013,043 $11,800,000 $399,462 
3Q05 $1,187,800 $732,830 
4Q05 $12,015 $192,701 $50,833 
lQ06 $811,417 
2Q06 $283,640 $114,974 
3Q06 $2,461,256 $5,602,435 
Total $5,000,000 $4,808,732 $7,000,000 $5,683,470 $11,800,000. $6,979,121 

After the defendants were either terminated or had resigned by May 2006, Vitesse's new 

management directed that all previously unrecorded credits be recorded, including the credits 

above in 3Q06. The Company's failure to timely record these credits resulted in a material 

overstatement ofrevenue and accounts receivable in the corresponding periods. 

4. Vitesse Misapplied Cash Receipts to Hide the Age of 
Its Invalid Accounts Receivable 

47. As a result of its failure to timely record customer credits, Vitesse's accounts 

receivable balances grew and aged. In order fo; Vitesse to·:hide its improper revenue recognition 

practices related to the ISP and QSPs from its Auditor, Vitesse needed cash to conceal the true 

age of its old accounts receivable balances. 

48. In order to conceal the aged balances ofNu Horizons' invalid accounts receivable 

from the Auditor during its field work, Hovanec and Kaplan routinely instructed lower-level 

finance employees to improperly post cash receipts from other customers to the oldest ofNu 

Horizons' accounts receivable. After the Auditor's field work was completed, Kaplan instructed 

17
 



the lower-level fimmce staff to reverse these entries and apply the cash to the proper customers' 

accounts receivable balances. Both Hovanec and Kaplan knew this violated GAAP. 

49. This practice ofmisapplying cash receipts grew dramatically in scale when, in 

. later periods, Hovanec solicited large cash payments from Nu Horizons at quarter-end. As part 

ofhis quarter-end trips to negotiate the QSPs, Hovanec also requested large cash pre~payments 

from Nu Horizons. 

50. At times, the cash prepayment solicited by Hovanec was equal to or greater than 

the simultaneously negotiated QSP. For example, in Vitesse's second quarter of2003, Nu 

Horizons made a $7 million prepayment to Vitesse at the same time it provided an $871,000 

QSP to Nu Horizons. The prepayments from Nu Horizons continued for each ofVitesse's 

quarters from March 2003 through March 2006; The prepayments ranged from a low of$2 

million to a high of$16 million. The prepayments ranged from 11.8% to 803% ofthe dollar 

amount ofthe QSPs. The average dollar amount ofthe quarterly lump sum cash payments was 

over $7 million. 

51. Upon his return from Nu Horizons, Hovanec, and at times Kaplan, instructed the 

lower-level finance staffto post the cash payment to the oldest and largest ofNuHorizons' 

outstanding invoices~ After completion ofthe Auditor's field work, the lower-level finance staff 

was instructed to reverse the entries. 

-
52. As a result ofthe numerous discounts, returns, and side deals between Vitesse and 

Nu Horizons, the amounts due to Vitesse from Nu Horizons were difficult to reconcile. For 

example, on September 15, 2005, at the request of the A.uditor, Vitesse sent four letters to Nu 

Horizons asking it to confinn that 39 specific invoices listed as outstanding in Vitesse's records 

were,in fact, outstanding. The 39 invoices totaled more than $7.6 million and were dated 

18
 



between February 2005 and September 2005. Nu Horizons' records, however, indicated that all 

39 invoices were no longer outstanding. 

53. In September or October 2005, Nu Horizons told Kaplan in a phone conversation 

that it would not confirm these invoices as outstanding because they were indeed not 

outstanding. At Kaplan's request, however, Nu Horizons agreed not to return the confirmation 

letters to the Auditor. In its 2005 Form 10-K, Vitesse reported $30.4 million ofaccounts. 

receivable at September 30,2005. The $7.6 million ofthe Nu Horizons invoices represent more . . 

than 25% ofVitesse's reported accounts receivable balance. 

B. THE FRAUDULENT MANIPULATION OF STOCK OPTION GRANT DATES 

1. The Relevant Vitesse Stock Option Plans and Disclosures 

54. Vitesse regularly granted stock options to employees, including officers, under 

three shareholder approved plans, the 1989 Stock Option Plan, the 1991 Stock Option Plan and 

the 2001 Stock Incentive Plan (collectively, the "Option Plans"), which were generally effective 

in consecutive 10 year periods. With the exception ofnon-statutory options granted under the 

200lai1d 1989 Plans, these plans required that Vitesse grant all options with exercise prices at no 

less than 100% ofthe fair market value ofthe Company's stock on the "date ofgrant," which the 
.... . . . . 

1991 and 2001 plans define as ''th~ date on which the Administrator makes the determination 

granting such Option, or such other later date.~ is determined by the Administrator." The 1989 
. ;~. 

Plan provides that the "date ofgrant" is ''the date on which the Board makes the determination 

granting such Option." For non-statutory options awarded under the 2001 Plan, the plan 

provided that the exercise price is determined by the plan's Administrat-or, which was in practice 

. the Compensation Committee ofVitesse's Board ofDirectors. For non-statutory options 

19
 



awarded under the 1989 Plan, the plan provided that the exercise price could not be less than 

85% ofthe fair market value ofthe stock on the date ofgrant. 

,55. Vitesse disclosed in every annual report on Form 10-K for its fiscal years 1996 

through 2005 that under the Option Plans the exercise price ofall stock options must be at least 

equal to the fair market value ofVitesse's common stock on the date ofgrant. Thus, Vitesse 

cOnsistently disclosed to investors that the Option Plans prohibited the grant of in-the-money 

options. 

56. Additionally, Vitesse's annual reports on Form lO-K for its fiscal years ended . 

September 30,2002 through September 30,2005 affirmatively stated, in substantially similar 

terms that, other than certain grants made in connection with certain companies Vitesse acquired, 

all option grants made by Vitesse to employees were granted at the fair market value at the time 

ofgrant. Vitesse's quarterly reports on Form 10-Q filed from May 2004 to February 2006 . 

similarly stated thattheCompany did not grant in-the-moneyoptions. 

2. Accounting for Employee Stock Options and Vitesse's Disclosures 

57. During the period descnbed herein, GAAP, and in particular Accounting 

Principles Board Opinion No. 25, Accountingfor Stock Issued to Employees ("APB 25"), did not 

require a company to record any compensation expense for employee stock options so long as 

the option exercise price was set: at the quot,¢+market price ofthe company's stock on the date 
" '. -", ­

ofthe grant (i.e., an "at-the-money" option), or above the quoted market price of the company's 

stock on the date ofthe grant (i.e., an "out-of-the-money" option). 

58. Under APB 25, an employee option granted with an exercise price lower than the 

quoted market priceofthe company's stock on the date ofgrant (i.e., an "in-the-money" option) 

has "intrinsic value." The "intrinsic value" ofa fixed stock option is the difference between the 

20exercise price and the quoted market price ofthe company's stock on the date ofgrant or the 

"measurement date." During the period describedherein, employers were required to record as 

an expense on their financial statements the "intrinsic value" of a fixed stock option on its 

"measurement date." The measurement date, as defined by APB 25, is the first date on which 

the following information is known: (i) the number ofoptions that an individual is entitled to 

receive, and (ii) the exercise price. Under APB 25, the intrinsic value ofa fixed stock option 

must be recognized over the vesting period ofthe option. Options that are at-the-money or out­

of-the-money on their grant or measurement date have no intrinsic value and therefore need not 

be expensed. 

59. Beginning on December 15, 1998 and continuing through the period described 

herein, FASB Interpretation No. 44, Accountingfor Certain Transactions Involving Stock 

Compensation. an Interpretation ofAPB Opinion No. 25 ("FIN 44"), requiTed the application of 

variable accounting under APB 25 when an employee's stock option is repriced unless asix­

month waiting period requirement is met. Variable accounting requires that compensation 

expenses be adjusted from period to period, based on variations in the market price ofthe 

company's stock as compared to the exercise price ofthe option grant. 

60. Vitesse's Forms 10-K for fiscal years ended September 30, 1996 through 

September 30, 2005 stated that the Company p.r~ared its financial statements in accordance with 
. .! . -~ . 

GAAP, and that Vitesse accounted· for stock option grants in accordance with APB 25. Vitesse 

al~o disclosed in its Forms 10-K for fiscal years 2000 through 2005 that it complied with FIN 44. 

Vitesse's Forms lO-Q filed from May 2003 to February 2006 also state that the Company 

applied, or accounted for stock option grants in accordance with, APB 25. 

21
 



3. The Stock Option Granting Process at Vitesse 

61. Vitesse regularly granted options to employees and officers at the time they were 

hired and on an annual ("evergreen") basis. Vitesse periodically granted other types ofoptions 

aswell, such as perfonnance and retention awards. Vitesse's Compensation Committee. 

comprised of independent directors approved all option grants that Vitesse awarded. The 

Committee typically granted options at in-person meetings following regularly scheduled Board 

meetings, and at times granted options during telephonic meetings or by unanimous written 

consent. 

62. Tomasetta approved all grant proposals before he recommended them to the 

Compensation Committee. After Tomasetta approved the proposed recipients and number of 

options, Tomasetta, Hovanec and Mody's administrative assistant -- who also serVed as the 

Company's de facto stock option administrator (the "Assistant") -- typically provided a schedule 

ofthese options to the Compensation Committee in advance of the Committee's meetings. 

Schedules provided to the Committee generally did not include a recommend date or exercise 

price, though proposals for new hires at times identified the employees start date as the intended 

grant date. 

63. Tomasetta an9 Hovanec attended Compensation Committee meetings and
 

presented the option proposals to the Commit~~~, and the Committee typically considered and
 
l-~ 

approved grants in their presence without modification. Vitesse's Compensation Committee did 

not discuss option exercise prices. Compensation Committee members intended and believed 

that, with the exception ofnew hire grants, the grant dates for all options they approved were the 

. dates ofthe meetings where they approved the options, and that the exercise price ofthe options 

would be the close ofVitesse's stock on the approval dates. For new hires, Compensation 

22
 



Committee members believed that the exercise price was set at the closing price ofthe 

Company's stock on either the date ofthe Committee's approval or the employee's start date. 

64. Sometime after the Committee approved a set ofgrants, the Assistant entered 

the options into the Company's electronic stock options database (Equity Edge) based on the 

approved option grant schedule (which included optionee names and option numbers),. and a 

grant date and exercise price provided by Tomasetta or Hovanec. TheSe lists at times included 

options and recipients that Tomasetta had authorized but that the Committee had not previously 

granted.. The Assistant then printed a ''Notice of Stock Options and Option Agreement" ("Grant 

Notices") for each individual grant, and asked Hovanec or Tomasetta to sign them on behalfof 

Vitesse. After the Grant NoticeS were signed, the Assistant forwarded them to Company 

supervisors to distribute to employees. 

. 4. The Stock Option Backdating Scheme 

65. Between 1995 and 2005, Tomasetta and Hovanec regularly disregarded the dates 

the Compensation Committee approved stock option grants and routinely used hindsight to select 

grant dates based on low points in the price ofVitesse's stock. At times, Tomasetta and 

Hovanec sought the Assistant's support in identifying low prices, such as by directing the 

Assistant to print a list or chart ofVitesse's .stock prices covering a one to three month period. 

Tomasetta or Hovanec would then choose a lq,¥ price or ask the Assistant to identify the low 
. i~ 

poce. 

66. Selection of favorable exercise prices occurred at different times relative to the 

Compensation Committee's approval ofthe grant. In some cases, Tomasetta and/or Hovanec 

chose a favorable price by looking back days, weeks or months at or around the date ofthe 

Committee's approval. At other times, they waited to see ifthe stock price would decline further 

23
 



after the Committee's approval before retroactively selecting the price. In still other instances, 

when Vitesse's stock price continued to decline in the weeks or months after Tomasetta and/or 

Hovanec had selected a price, they used hindsight to regrant or "reprice" the options. Certain 

options were repriced multiple times, with Tomasetta and/or Hovanec using hindsight to select 

each new price. 

67. Through the backdating, Tomasetta and Hovanec caused Vitesse to falsify its 

books and records to reflect the chosen date as the purported grant date instead ofthe date the 

options were actually approved by the Compensation Committee~ After Tomasetta and/or 

Hovanec chose a low price for the options, they instructed the Assistant to record the price and 

corresponding "grant date" in Equity Edge. In connection with some ofthe grants that 

Tomasetta and/or Hovanec repriced, Tomasetta and/or Hovanec at times instructedthe Assistant 

to delete the original grant date entries from Equity Edge and to shred all documents associated 

with the original grants. They also instructed the Assistant to record the selected price and 

"grant date" in the Compensation Committee meeting minutes that the Assistant prepared from 

Hovanec's handwritten notes. Hovanec signed the final version ofthe Compensation Committee 

minutes as Secretary for each meeting. 

68. For approximately fifteen ofthe backdated options, the Committee minutes are 

backdated or misdated on their face, meaningJ~Uhe correct meeting date is included in the title ... 

and first paragraph, but later in the text or on the attached sched,ules the minutes disclose the 

false grant date that Tomasetta and/or Hovanec had selected. In additioll; the Grant Notices 

given to employees reflect the chosen date and price as the grant date and exercise price for the 

options. 

24
 



69. As a result ofTomasetla and Hovanec's actions, Vitesse backdated the grant dates 

for at least 40 option grants during 1995 through 2005. Nearly every annual evergreen grant to 

the Company's employees and officers was backdated. Grants to new hires were backdated, on 

occasion, to dates before Vitesse had even hired the employee. One-offgrants to employees 

were also backdated. In total, and as set forth in the charts below, Vitesse backdated or repriced 

a total of6,953 individual option grants with 43 fraudulent grant dates covering approximately 

49 million options. 

70. In the charts below~ the "Revised Grant Date" represents the revised measurement 

date that Vitesse recorded in its Stock Options Restatement. 

Backdaet dEvergreen Grants 

Purported 
Grant Date 

Revised 
Grant 
Date 

.Exercise 
Price 

Exercise 
Price on 
Revised 

Grant Date 

Difference 
in Share 

Price 

Tota'Shares 
Granted 

1/27/1995 4/19/1995 $4.50 $4.56 $0.06 400,500 

1/23/1996 9/17/1996 $11~25 $41.12 $29.87 275,000 

3/19/1997 4/15/1997 $22.50 $30.50 $8.00 913,700 

1/1/1998 4/21/1998 $37.75 $56.63 $18.88 1,280,600 

10/5/1998 1/26/1999 $18.06 $48.75 $30.69 2,112,050 

4/6/2001 7/1212001 $17.44 $18.85 $1.41 5,668.900 

10/212001 

12/17/2003 

10/20/2003 

10/27/2004 

1/29/2002 

4/17/2004 
10/16/03; 
repriced 

on 
1/26/2004 
1/24/2005 

$7.27 

$5.69 

$6.97. 

$2.58 

;j. 
~ .. , 

.­

$12.46 
. $5.77 

$7.32 

repriced 

·$8.74 
$3.1'"8 

.-.' 

$5.19 

$0.08 
$0.35 

$1.77 
$0.60 

6,952,450 

4,204,500 

1,600,000 

10,821,100 

Total 34,228,800 

-Backdated New Hire Grants 

Purported 
Grant Date 

Revised 
Grant-Date 

Exercise 
Price 

Exercise 
Price on 
Revised 

Grant Date 

Difference 
in Share 

Price 

Total Shares 
Granted 

2/24/1997 
3/31/1997 
4/21/1997 

4/15/1997 
4/15/1997 
7/19/1997 

$28.91 
$27.62 
$27.75 

$30.50 
$30.50 
$41.00 

$1.59 
$2.88 
$13.25 

96,750 
12,500 
4,000 

25
 



10/5/1998 1011711998 $18,06 $28.44 $10.38 18,500 

10/1/1998 $20.44 $48.75 $28.31 12,500 
11/2/1998 
12/1/1998 

1/26/1999 
$33.00 
$35~75 

$48.75 
$48.75 

$15.75 
$13.00 

111,000 
11,000 

1/4/1999 $44.31 $48.75 $4.44 135;500 
4/18/2000 $62.56 $11.93, 

4/24/2000 repriced on $50.63 repriced 125;200 
7/18/2000 $73.56 $22.93 

4/24/2000 7/18/2000 $50.63 $73.56 $22.93 28,200 

5/10/2000 
7/18/2000 
9/21/2000 

$45.75 
$73.56 
$86.00 

$27.81 
$40.25 

74,100 
10,000 

5/23/2000 7/18/2000 $41.38 $73.56 $32.18 25,000 

6/1/2000 
7/18/2000 
9/21/2000 

$56.50 
$73.56 
$86.00 

$17.06 
$29.50 

28,300· 
300,000 

6/30/2000 7/18/2000 $73.56 $73.56 $0.00 61,500 

7/5/2000 
7/18/2000 
9/21/2000 

$69.25 
$73.56 
$86.00 

$4.31 
$16.75 

27,700 
3,100 

7/28/2000 9/21/2000 $56.56 $86.00 $29.44 300 
7/5/2000 $69.25 $86.00 $16.75 100 
7/28/20bo $56.56 $86.00 $29.44 21,100 
8/3/2000 

8/16/2000 
9/21/2000 

$54.81 
$77.94 

$86.00 
$86.00 

$31.19 
$8.06 

152,400 
25,600 

9/12/2000 $78.75 $86.00 $725 43,600 
9118/2000 $80.19 $86.00 $5~81 14,000 
2113/2001 7/12/2001 $20.00 $18.85. .($1.15) 39,088 

1/23/2001 $75.88 $58.44 
4/6/2001 repriced on $17.44 repriced 134,200 

4/12/2001 $25.70 $8.26 
4/6/2001 ·4/12/2001 $17.44 $25.70 $8.26 560,150 

7/10/2001 7/12/2001 $15.78 $18.85 $3.07 589,700 

9/20/2001 $8.92 $1.65 

10/2/2001 
repriced on 
10/25/2001 

$7.27 repriced 
$11.35 $4.08 

311,700 

10/25/2001 $7.27 $11.35 . $4.08 183,300 
10/30/2001 
11/212001 

1/29/2002 
1/29/2002 

$8.84 
$9.98 .i~ 

~ 
$12.46 
>$12,~6 

t._:. $3.62 
$2.48 . 

2,000 
90,900 

12/312001 1/29/2002 $11.11 
.. - $12.46 $1.35 168,400 

1/23/2002 
1/29/2002 
4/18/2002 

$11.62 
$11.62 

$12,46 
$7.94 

$0.84 
($3.68) 

93,900 
38,200 

4/18/2002 $7.94 $3.32 
5/6/2002 repriced on $4.62 repriced. 219,500 

7/18/2002 $3.18 ($1.44) 
7/18/2002 $3.18 $1.92 

8/15/2002 repriced on $1.26 repriced 178,800 
9/19/2002 $0.99 ($0.27) 

Total 3,951,788 

26
 



Backdated Other Grants 

Purported 
Grant Date 

Revised 
Grant 
Date 

Exercise 
Price 

$10.75 

$22.50 

9/13/1995 9/14/1995 

3/19/1997 4/15/1997 

1/1/1998 4/21/1998 $37.75 

$26.75 

$18.06 

$45.63 

$52.63 

$46.63 

$50.63 

$80.19 

$17.44 

$15.78 

$7.27 
$7.27 
$7.27 
$8.84 
$9.98 
$11.11 
$11.62 

$7.36 

, 
.. 

$4.62 

$1.26 

$2.18 

$5.69 

5/14/1998 7/14/1998 

10/5/1998 1/26/1999 

1/1/1999 

5/24/1999 
7/20/1999 

1/26/2000 4/18/2000 

4/24/2000 7/18/2000 

9/18/2000 9/21/2000 

4/6/2001 7/1212001 

7/10/2001 7/12/2001 

10/2/2001 
10/25/2001 
1/29/2002 
4/18/2002 

10/30/2001 
11/2/2001 
12/3/2001 
1/23/2002 

1/29/2002 
1/29/2002 
·1/29/2002 
1/29/2002 

4/2212002 
4/16/2002 

repriced on 
7/18/2002 

5/6/2002 
4/18/2002 

repriced on 
7/18/2002 

8/15/2002 

7/18/2002 
repriced 

on 
9/19/2002 

4/1/2003 4/17/2003 

12/17/2003 4/17/2004 

Exercise
 
Price on
 
Revised
 

Grant Date
 

$11.25 

$30.50 

$56.62 

$33.75 

$48.75 

$59.25 

$59.25 . 

$62.56 
.. 

$73.56 

$86.00 

. $18.85 

$18.85 

$11.35 
$12.46 
$7.94 
$12.46 
$12.46 
$12.46 
$12.46 
$7.94 

reprieed 
;i. • $3.18 '.: 

$7.94 
-

repriced 
$3.18 
$3.18 

repriced 

$0.99 

$2.40 

$5.77 

Difference 
in Share 

Price 

Total Shares 
Granted 

$0.50 75,000 

$8.00 136,500 

$18.87 2,000 

$7.00 6,000 

$30.69 40,000 

$13.62 1,000 

$6.62 139,000 

$15.93 19,100 

$22.93 34,000 

$5.81 1,500 

$1.41 1,273,644 

$3.07 609,591 

$4;08 230,876 
$5.19 7,438,741 
$0.67 195,000 
$3.62 2,950 
$2.48 5,350 
$1.35 3,500 
$0.84 6,350 
$0.58 

125 
($4.18) 
$3.32 

24,400 
($1.44) 
$1.92 

7,475 

($0.27) 

$0.22 15,000 

$0.08 72,500 

27
 



10/27/2004 1/24/2005 I $2.58 I $3.18 I $0.60 226,000 

Total 10,565,602 

71. Vitesse, through the knowing or reckless actions ofTomasetta and Hovanec, 

failed to record compensation expense for any of these options in the financial statements it filed . 

with the Commission in annual, quarterly, and other reports during the fiscal years ended 

September 30, 1996 through the first quarter of2006, which ended December 31,2005. These 

unrecorded expenses, which are contained within the Stock Options Restatement included in 

Vitesse's Form 10-K filed in September 2008, overstated Vitesse's annual pretax income or 

understated it annual pretax Joss by between approximately 1.7% and 45.7% during the fiscal 

years 1996 to 2005, as identified in the chart below. 

Fiscal 
Year 

Approximate 
Unrecorded 
StockComp 

Expense 

.Previously 
Reported Pretax 
Income (Loss) 

Approximate 
Unrecorded Stock Comp 

as % of Pretax Results 

1996 $ 233,791 $ 14,050,000 1.7 % 
1997 $ 4,708,512 $ 36,540,000 12.9% 
1998 .$ . 7,349,285 $ 65,951,000 11.1 % 
1999 $ 23,393,202 $103,890,000 22.5% 
2000 $ 22,489,536 $ 81,678,000 27.5% 
2001 $ 28,723,399 ($159,062,000) 18.1 % 
2002 $ 46,047,137 ($823,719,000) 5.6% 
2003 $ 24,625,010 ($131,179,000) 18.8 % 
2004 $ 15,362,456 ($33;;613,000) '-'~ 45.7% 
2005 $ 11,293,558 ($ 129,811,000) . 8.9% 
Total $184,225,887 -­ -­

5.	 Tomasetta and Hovanec Knew or Recklessly Disregarded
 
The Pricing Requirements of the Option Plans and the
 
Applicable Stock Option Accounting Rules
 

72.. Tomasetta and Hovanec knew or were reckless in not knowing that Vitesse's 

shareholder-approved Option Plans prevented in-the-money grants for most options during the 

period from 1995 to 2005. Tomasetta reviewed, signed, and in certain years certified Vitesse's 

28
 



fiscal 1996 - 2005 Fonus 10-K, and Hovanec reviewed, signed, and in certain years certified 

Vitesse's 1996 - 2004 Fonus 10-K, containing the above identified disclosures that the Option 

Plans prohibited the grant of in-the-money options and/or that all option grants made by Vitesse 

to employees were granted at the fair market value at the time ofgrant. Tomasetta also reviewed 

and certified the above identified Fonus 10-Q filed from May 2004 to February 2006 that stated 

Vitesse did not grant in-the-money options, and Hovanec reviewed, signed, and certified the 

Forms 10-Q filed from May 2004 to February 2005. 

. 73. Inaddition, during their attempt to cover-up certain of their stock option 

backdating misconduct during late 2005 to April 2006 following media inquiries ofpossible 

backdating at the Company (discussed below in ~~ 112-118), they told Vitesse directors in early 

2006 that the Companyhistoricallypriced options at the market value ofthe stock on the date the 

Compensation Committee approved the grants. 

74. Tomas,~tta and Hovanec also knew or recklessly disregarded the accounting rules 

governing in-the-money and repriced option grants. Both ofthem reviewed, signed, and in 

certain years certified the above identified Fonus lO-K that stated Vitesse prepared its financial 

statements in accordance with GAAP and' accounted for stock option grants in accordance with 

APB 25 and FIN 44. They also reviewed, signed, and certified various VitesseFonus 10-Q filed 

from May 2003 through fiscal 2005 that cont$ similar disclosures.' Further, they reviewed and 
. I~ ...... 

. " 

signed various management representation letters provided to the Company's Auditor (identified 

below in W156-158) that stated that stock option grants were accounted for in accordarice with 

APB 25. 

29
 



75. Hovanec, as a Certified Public Accountant, was trained in accounting, worked as 

.an auditor for five years (1972 to 1976) at Arthur Andersen rising to the level 0 f senior 

accountant, and served in various accounting positions at other public companies. 

76. Tomasetta and Hovanec knew the accounting ramifications ofgranting in-the­

money options at least as early as April 1999. In mid-1999 Vitesse acquired a software company 

called XaQti. To induce XaQti to agree to the acquisition, Tomasetta and Hovanec agreed to 

grant in-the-money options to certain XaQti employees after they joined Vitesse. In connection 

with these grants, Mody explained to Tomasetta and Hovanec that when the exercise price ofan 

option is less than the fair market value ofthe underlying stock on the date ofgrant, a registrant 

must expense the difference between the exercise price and the grant date fair market value. 

Mody informed Tomasetta and Hovanec that Vitesse would have to expense the in-the-money 

portion ofthe options (approximately $5 million) over the life ofthe options, as long as the 

employees remained with Vitesse. Consistent with Mody's statements, Vitesse recorded 

compensation expense for these options in its Forms 10-K for the fiscal years 2000 through 

2002, which Tomasetta and Hovanec reviewed and signed. 

77. In addition, in late 2005 during Tomasetta's and Hovanec's attempt to cover-up 

certain oftheir backdating, the law firm that serVed as Vitesse's long-time outside counsel 

("Outside Counsel") reminded Tomasetta anq.ijovanec about the accounting ramifications of 
; . 

.. 
granting ,in-the-money options. In this same period, Mody also represented to the Audit 

Committee ofVitesse's Board ofDirectors and Vitesse's Auditor, at an Audit Committee 

meeting which Tomasetta and Hovanec attended; thatVitesse had properly accounted for prior 

. option grants'in accordance with APB 25. Days later, Vitesse filed its 2005 10-K that Tomasetta 

30
 



reviewed, signed, and certified, but which failed to record compensation expenses generated by 

Tomasetta and Hovanec's backdating. 

78. By at least July 2002, Tomasetta and Hovanec also knew ofthe accounting and 

disclosure requirements for repriced options. Around this time underwater options were 

depressing morale at Vitesse and the Company sought advice from its Outside Counsel about 

how to reestablish the value ofthese options. Outside Counsel advised Vitessemanagement, 

including through slides sent to Hovanec that Outside Counsel prepared for a Board presentation, 

and via conference calls with Hovanec, that ifVitesse repriced existing options then the revised 

options would be subject to variable accounting. Reissuing new options six months and one day 

after the originals had been canceled, however, would not require such accounting. Outside· 

Counsel further explained that shareholders disfavor repricings because they incur real losses 

when the price oftheir own stock declines but receive no special treatment, and further that 

repriced grants to named executives in the Company's proxy statements must be disclosed. 

79. This infonnation was communicated to Tomasetta and both he and Hovanec 

explained to Vitesse's board ofdiiectors the consequences ofrepricing or canceling options. 

Also, at a July 18, 2002 Compensation Committee meeting that OutSide Counsel participated in 

by phone, Tomasetta discussed with the Committee two different proposals for dealing with 

underwater options. Vitesse ultimately disclo.~~ in its 2002 proxy statement that the Committee 
. /".. 

had declined to cancel underwater options previously granted to Tomasetta and other executives, 

and reissue new ones, because the new options would be subject to variable accounting. This 

decision was made jointly with Tomasetta and Hovanec. 

31
 



5~ Examples of Tomasetta's and Hovanec's Options Backdating 

a. July 10, 2001 New Hire and Other Grants 

80. Vitesse'sJuly 10, 2001 grantofl,199,291 options to 141 new hires and certain 

current employees was backdated by two days. On July 12, 2001, Tomasetta and Hovanec 

attended a Compensation Connnittee meeting where the Committee approved the options. The 

stock closed that day at $18.85. On or about this date, Hovanec looked back to select a low price 

for the options. A stock price chart from the Assistant's files dated July 11, 2001lists Vitesse's 

stock price from June 15 to July 11. The price next to the July IOdate, which is the lowest price 

on the chart, is circled and next to it Hovanec wrote, "[Assistant] stock price Gene." The 

Compensation Committee meeting minutes documenting this grant are backdated, stating that the 

exercise price shall be 100% ofthe fair market value of the stock on July 10, 2001. 

81. Based on the closing price ofVitesse's stock on July 10 ($15.78), these options . 

were in-the-moneyon a per share basis by $3.07, and in the aggregate by approximately $3.7 

million. Hovanec signed the meeting minutes documenting the grant, and towards the end of 

July through September, both he and Tomasetta signed the corresponding Grant Notices which 

contained the false grant date. In its Stock Options Restatement, Vitesse revised the 

measurement date for these options to July 12, 2001. 

b.May 6, 2002 New Hir.e .nd Other-Options 
. '.)" . -~ 

82; Vitesse's May 6, 2002 grant of244,025 options to 50 new hires and certain . 

current employees was backdated and then repriced as Vitesse's stock price declined. On April 

18, 2002, Tomasetta and Hovanec attended a Compensation Committee meeting where the 

Committee granted the options. In the following weeks, Tomasetta and Hovanec twice 

manipulated the grant date for these options 

32 



83. Hovanec first selected April 22, 2002 as the grant date. On a stock price chart 

•listing Vitesse'~ stock prices from January 30 to April 18, the Assistant wrote, "Gene, Hire dates 

(highlighted) for new grants. Last qtr we used the low in each month. [Assistant]". Hovanec 

responded by writing on the chart, "do them as oftoday Gene 4/22/02 hire date vest", meaning 

that the Assistant should record April ,22 as the grant date but use the employees' hire date to 

commence the options' vesting period. The closing price ofVitesse's stock on April 22 was the 

second to lowest closing price ofthe Company's stock between January 30 and April22. 

84. Hovanec and Tomasetta thereafter selected a new grant date with a lower price. 

In an email chain between the ASSIstant and a vice president in Vitesse's European operations, 

dated between May 8 and May 10, 2002, the Assistant stated: 
. . 

.The whole group ofnew hire grants approved at the April 18 Board ofDirectors 
meeting were given a grant date ofApril 22; option price $7.36. Then, when the 
stock price began to fall, Gene Hovanec suggested I wait a week or two before 
we finalized everything to send to employees. We talked about it again 
yesterday and decided to discuss with Lou on Friday (he's traveling Wed & 
Thur) to make sure we are going to go ahead with the April 22 grant date & 
pnce. 

85. Tomasetta ultimately instructed the Assistant to change the grant date from April 

22 to May 6. On a stock price chart listing Vitesse's stock price from April 18 to May 8, 2002, 

the Assistant wrote, "New hires Feb,March, April change to," followed by an arrow pointing to 
_--:t - -. 

the date 5/6/02 and the price $4.62. This date.and price are circled, and the Assistant wrote, "per 

Lou on 5-10-02(.)" The closing price ofVitesse's stock on May 6 was the lowest closing price 

ofthe Company's stock between January 30 and May 10. Based on the closing price on May 6, 

the exercise price for these options was $3.32 per share ($809,748 in the aggregate} lower than 

the closing price ofVitesse's stock on April 18, when the options were actually approved. 

33
 



86. On or about May 13, 2002, Hovanec signed the Grant Notices for these grants 

which contained the false May 6 grant date. 

87. The minutes documenting the Compensation Committee's April 18 meeting are 

backdated and state that the exercise price for the options shall be 100% of the fair market value 

ofthe stock on May 6. Hovanec signed the minutes. 

88. In its Stock Options Restatement, Vitesse concluded that these options were first 

granted on April 18, 2002 and then repriced on July 18, 2002, the date ofthe next board meeting 

when the Compensation Committee minutes were final and signed. As a result ofthe repricing, 

Vitesse applied variable accounting to the options, recording approximately $89,869 in 

.compensation expense. 

c. . October 2, 2001 Fiscal 2002 OfficerlEmployee Evergreen Options 

89. Tomasetta and Hovanec ~anipulated Vitesse's October 2,2001 grant of 

approximately 6.9 million evergreen options to 1,057 employees and various officers on three 

separate occasions, backdating the final grant by approximately four months. In the first 

instance, it appears that at the July 12,2001 Compensation Committee meeting, which 

Tomasetta and Hovanec attended, the Committee considered a preliminary total evergreen option 

number. Atthat meeting the Committee was not provided with any option grant schedules 

containing specific proposals for identified etp.ployees, and it did not approve the fiscal year . 
.i ... 

2002 evergreens at that time. The Assistant's handwritten notes on a summary sheet ofgrants to 

be considered at the meeting state "grant date TBD" for the employee evergreenS and certain 

other options, and the minutes ofthe July 12 meeting make no mention of the evergreens, 

Nevertheless, at Tomasetta's or Hovanec's direction, and using the same July 10, 2001 . 

backdated grant date that Hovanec had selected for the new hire and other options that were 

34
 



actually graIlted at this meeting (discussed above), the Assistant recorded a grant date and 

exercise price ofJuly 10, 2001 and $15.78 in various Company records for these evergreen 

options. 

90. As the Company's stock price declined, Tomasetta and/or Hovanec instructed the 
/ 

Assistant to change the grant date to August 21, 2001 and a price of$13.23. The Assistant typed 

draft minutes ofa purported August 21 telephonic meeting ofthe Compensation Committee 

where the Committee allegedly·granted the evergreens. In fact, no such meeting occurred, and 

these minutes were never signed. The Assistant ultimately deleted the August 21 date and the 

corresponding price from Equity Edge at Tomasetta's and/or Hovanec's direction. 

91. Tomasetta and/or Hovanec instructed the Assistant to change the grant date and 

exercise price for the options for a third and final time to October 2,2001 and $7.27. This grant 

is identifiedm minutes ofa meeting ofthe Compensation Committee held on October 25,2001, 

which Tomasetta and Hovanec attended. The minutes are backdated and state that the exercise 

price ofthe options shall be 100% ofthe fair market value ofthe stock on October 2,2001. 

Vitesse's Compensation Committee, however, did not meet on October 2,2001 or otherwise take 

any actions to grant the options on this date. 

92. The October 2 "grant" was not finalized until four months after the purported 

grant date, as evidenced by various'documen.!s:iind Tomasetta and Hovanec's approval. The 
. .'" .~ 

Assistant included a draft ofthe October 25 Committee minutes in the board book for the next 

board meeting, which occurred on January 29,2002; the draft contains total evergreen options 

that differ slightly from the final version of the minutes that Hovanec signed on or after that date. 

In a January 30, 2002 inter-office memo, the vice president ofVitesse's Human Resources 

department ("HR Department") distributed ''this year's final approved evergreen stock option 

35
 



list" to various supervisors noting the October 2 "grant date" and price, and informing them that 

they "can now advise your employees" ofthe grant and that the Assistant will distribute the 

option paperwork in the next 60 days. A chart the Assistant prepared after the January 29 

Compensation Committee meeting identifies the type, vesting periods, and backdated grant dates 

for both options the Committee approved on January 29 as well as for the fiscal year 2002 

evergreen and certain other options. For the evergreen and certain other options the chart states, 

"Grant date is 10/2/01." The Assistant wrote on the chart, "OK'd by Lou & Gene 2-~ 1-02." 

Finally, in March 2002 Hovanec and Tomasetta signed the Grant Notices for the evergreen 

options which the Assistant then distributed to employees. 

93. The closing price ofVitesse's stock on October 2 was the second to lowest 

closing price ofthe Company's stock between July 2001 and January 29, 2002; Vitesse's stock 

closed just $0.24 lower on September 27. 

94. In its Stock Options Restatement, Vitesse revised the measurement date for these 

options to January 29,2002. Based on the closing price ofthe stock on this date ($12.46), the 

options were in-the-money by $5.19 per share, or approximately $36 million in the aggregate. 

Tomasetta's 1.2 million options were in-the-money by approximately $6.2 million al1d 

Hovanec's 300,000 options were in-the-money by $1.5 million. 

95. In addition; as alleged below, gwmg November 2005 - April 2006, faced with 
i~ 

media inquiries concerniri.g possible backdating at Vitesse, Tomasetta and Hovanec attempted to 

cover up the fact that they had backdated·the fiscal year 2002 evergreen grants. Tomasetta·and 

Hovanec fabricated board ofdirector minutes that falsely documented a telephonic meeting of 

the Compensation Committee on October 2, 2001, which never occurred. Tomasetta also 

inserted an entry for an October 2, 2001 meeting into his Palm Pilot. 

36 



d. March 19, 1997 Fiscal 1997 OfficerlEmployee Evergreen Options 

96. Tomasetta and/or Hovanec backdated Vitesse's fiscal year 1997 officer and 

employee evergreen grant from April 15, 1997 to March 19, 1997. This grant included 

approximately 913,700 options awarded to 216 employees and officers. 

97. Tomasetta and Hovanec attended a meeting ofVitesse's Compensation 

Committee on April 15, 1997 at which time the Committee approved a nearly final list for the 

fiscal year 1997 evergreen options for officers and employees. The board book for Vitesse's 

next quarterly board meeting, which occurred on July 15, 1997, which Tomasetta and Hovanec 

also attended, includes an unsigned draft ofthe April 15, 1997 Compensation Committee 

meeting minutes. This draft states that on April 15th
, "Dr. Tomasetta reviewed the process uSed 

to determine additional stock option awards to current employees based on current performance 

and long-term contribution to the Corporation." The draft further states that the Committee 

approved the employee and officer evergreens on April 15th, and that in accordance with the· 

terms ofthe company's option plans, the exer~ise price for these options is "the closing price of 

the company's stock on the date ofthe Compensation Committee meeting." 

98. The signed version ofthe April 15, 1997 Compensation Committee meeting 

minutes, .however, discloses an exercise price that is different from the exercise price disclosed in 

the unsigned version ofthe minutes ineIudedjn~the July 15th Board book. These signed minutes 
.'. 

state that the exercise price for the options granted at the meeting is the closing price ofthe· . 

company's stock on ''the date ofthetelephonic meeting ofthe Compensation Committee, March 

19, 1997." Vitesse's Compensation Committee, however, did not approve the fiscal year 1997 

evergreen options at a telephonic meeting on March 19, 1997. 

37
 



.99. Moreover, Vitesse's Compensation Committee did not even approve the final 

version ofthe officer evergreens uiltil after April 15, 1997. On April 22, 1997, Tomasetta 

submitted a final proposal forthe officer evergreens to the then Chair ofthe Compensation 

Committee. In that proposal, Tomasetta noted that one of the other directors suggested 

increasing Tomasetta's evergreen grant by an additiona150,000 options. 

100. The closing price ofVitesse's stock on March 19, 1997 was $22.50, which was 

the lowest closing price ofthe Cqmpany's stock during all of 1997. In its Stock Options 

Restatement, Vitesse revised the measurement date fOf these evergreen options to April15, 1997. 

Based on the closing price ofVitesse's stock on this date ($30.50), these options were in-the­

. . 

money on a per share basis by $8, and in the aggregate by approximately $7,309,600. 

Tomasetta's 600,0000 options (split-adjusted) were in-the-moneyby approximately $1.2 million,. . 

and Hovanec's 120,000 options (split-adjusted) were in-the-money by approximately $240,000. 
, ' 

101. Hovanec signed the April 15, 1997 Compensation Committee meeting minutes, 

Tomasetta signed Hovanec's corresponding stock option Grant Notice, and Hovanec signed the 

remaining stock option Grant Notices to employees and officers. 

e. August 15, 2002 New Hire and Other Grants 

102. On July 18, 2002, Tomasettaand Hovanec attended a Compensation Committee 

meeting where the Committee granted 178,8QQ;Qptions to '48 new hires and certain current 
.:. . ...... 

employees. Vitesse's stock price declined thereafter, and on August 20, 2002, Hovanec repriced 

these options and gave them a revised grant date ofAugust 15,2002. A copy oftheoption grant' 

schedule that management submitted to the Compensation Committee at the July 18 meeting 

contains handwritten notations that state ''$2.42'' and "grant as ofJuly 31, 2002." The July 31 

date is crossed out and on top ofthis date there is another handwritten date of "8-15-02." The 

38
 



handwritten phrase thus reads "grant as of8-15-02;" This notation is signed by Hovanec and 

there is another handwritten notation stating "(revised 8-20-02 by Gene.)" 

103.· The closing price ofVitesse's stock on August 15,2002 was $1.26. This price 

represents the second to lowest closing price ofthe Company's stock between July 18th and 

August 20; 2002. (Vitesse's stock closed just $0.01 lower on August 12,2002.) 

104. On or about August 23 2002, Hovanec signed the Grant Notices for these grants 

which contained the false August 15, 2002 grant date. The minutes documenting the 

Compensation Committee's July 18, 2002 meeting are backdated and state that the exercise price 

for these options is 100% ofthe fair market value .ofthe company's stock on August 15,2002. 

Hovanec signed the minutes. 

105. In its Stock Options Restatement, Vitesse concluded that these options were first' 

granted on July 18, 2002, and then repriced on September 19, 2002, the date of the next board 

meeting when the Compensation Committee minutes were final and signed. As a result ofthe 

.repricing, Vitesse applied variable accounting to the options, recording approximately $455,825 

in compensation expense in 2003, and reversing approximately $207,335 ofthis expense in 2004 

and $35,346 oftms expense in 2005 to give effect to subsequent declines in Vitesse's stock 

pnce. 

f. December 17, 2003 E~rtloyee Evergreen and Outstanding Performer 
.) - ' .....

Grants· __ 

106. Tomasetta and or Hovanec backdated Vitesse'g fiscal year 2004 employee. 

evergreen and outstanding performer option grants from April 17, 2004 to December 17, 2003.. 

This grant included approximately 4,277,000 options that went to approximately 655 employees. 

107. Tomasetta and Hovanec attended a meeting ofVitesse's Compensation 

Committee on October 16th
, 2003 at which time the Committee reviewed preliminary proposals 

39
 



for outstanding perfonner and officer and employee evergreen grants. Eight days later, Vitesse's 

HR Department forwarded preliminary employee evergreen option proposals to Company 

managers (including Tomasetta and Hovanec) requesting that they review, edit, and return the 

revised proposals by November 21 st so that Tomasetta could approve the grants. Vitesse's 

managers were still submitting revisions to the HR Department through the end ofJanuary 2004. 

On December 22, 2003, an employee in the HR Department Sent an email to a Vitesse vice 

president stating that the grant date and exercise price for the evergreen and outstanding 

perfonner grants had not yet been determined. 

108. After Tomasetta approved the revised employee evergreen proposals, the 

Assistant included schedules for the evergreens, as well as for proposals for outstanding 

perfonner grants, in the board book that the Assistant preparedfor the Board;s next meeting on 

January 26, 2004. At that meeting, which Tomasetta and Hovanec attended, Vitesse's 

Compensation Committee reviewed and granted the option proposals that were presented. On 

February 5,2004, an employee in the HR Department sent an email to Vitesse managers 

(including Tomasetta and Hovanec) infonning them that Tomasetta had approved the 

outstanding perfonner grants with a grant date ofDecember 17, 2003. 

109. Vitesse's January 26,2004 Compensation Committee meeting minutes are 

backdated. They state that the Committee gra,ntted the employee evergreens and outstanding 
. , .~. 

perfonner options on January 26th, and then they further state that the exercise price for the 

options is the fair market value ofVitesse's stock "on the date ofgrant, December 17, 2003." 

The closing price ofVitesse's stock on December 17th was $5.69. This price is the lowest 

c10smg price ofthe Company's stock between September 2003 and March 2004. 

40110. As alleged below, during November 2005 through April 2006, faced with media 

inquiries concerning possible backdating at Vitesse, Tomasetta and Hovanec attempted to cover 

up the fact that they had backdated option grants. To this end, Hovanec drafted and signed 

minutes that document a telephonic meeting ofthe Compensation Committee on December 17, 

2003 that never occurred. Hovanec made it appear as though these minutes had been created 

contemporaneously with the December 17th meeting date. 

111. In its Stock Options Restatement, Vitesse revised the measurement date for these 

grants to April 17, 2004,the date ofthe neXt Board meeting where the January 26th 

Compensation Committee meeting minutes were final and signed. Based on the closing price of 

Vitesse's stock on April 17th
, these options were in the money on a per share basis by $0.08, and 

in the aggregate by $336,000. Hovanec signed the January 24th minutes, and Hovanec and 

Tomasetta signed the corresponding Grant Notices which contained the false grant date. 

6.	 Tomasetta's and Hovanec's Attempt to Conceal Their Backdating Scheme in 
The Face of Media Inquiries During November 2005 to April 2006 

112. In early November 2005, the Journal contacted Vitesse about the legitimacy of its 

option granting practices. After the Journal's inquiries, Mody contacted Vitesse's Outside 

Counsel. Outside Counsel told Mody not to destroy or create any documents, and then it 

reviewed some ofthe Company's Compensation Committee meeting minutes. In mid­
:i,.. " '.-> 

November, Outside Counsel informed Mody'th~t it was concerned because some ofthe millutes 

were backdated on their face, meaning that theoption grant dates disclosed in the text were 

different from the meeting dates. During different phone calls, Outside Counsel repeated this 

concern to Hovanec and Tomasetta, and it specifically advised Tomasetta and Mody that Vitesse 

should conduct an independent investigation into the Company's option grant practices. In late 

November 2005, Outside Counsel informed Tomasetta that there might be very significant 

41
 



charges to the Company's financial statements because certain stock option grants were not 

properly accounted for, and it warned him against signing Vitesse's upcoming filing of its Form 

lO-K for fiscal year ended September 30,2005 unless he was certain that the Company's 

fmancial statements were accurate. 

113. Rather than follow Outside Counsel's advice, Tomasetta and Hov<,illec attempted 

to cover up their backdating practice by lying to Vitesse's board members and its Auditor, by 

creating and signing three bogus Compensation Committee meeting minutes to document grants 

at meetings that did not occur, and by Tomasetta recording two ofthese phantom meetings in his 

Palm Pilot. 

114. Specifically, in late November 2005, Tomasetta instructed Modyto draft two sets 

ofCompensationCommittee minutes, dated April 6 and October 2,2001, which were the 

backdated grant dates for two large evergreen grants to employees and officers. In fact, as 

Tomasetta·later admitted to counsel for Vitesse's Special Committee ("Special Committee. 

Counsel"), Tomasetta had only recently signed the former, Hovanec the latter, and on November 

22, Tomasetta arranged for the former head ofVitesse's Compensation Committee to sign both. 

On or about December 13, 2005, Hovanec directed the Assistant to draft another set of 

Compensation Committee minutes, which Hovanec signed, for a purported December 17, 2003 

meeting thatnever occurred. December 17, 20Q3 represents the backdated grant date for another 
.--'-; 

. evergreen grant. All three ofthese minutes pui]x>it to document the granting ofoptions on their 

respective dates. Vitesse's Compensation Committee, however, did not grant any options on 

these dates. 

115. After creating the two false 2001 Committee minutes, Tomasetta and Hovanec 

attended a December 6, 2005 Audit Committee meeting that was also attended by Mody, three 

42
 



Vitesse directors, and Vitesse's Auditors. At this meeting, Mody presented a memo that Mody 

had prepared to document management's review ofoption grant practices during fiscal years 

1996-2005. This memo, which all ofthe meeting participants discussed, assesses whether the 

Company's evergreen option grants were properly approved and accounted for in.confonnity 

with APB 25. The memo concludes that with the exception ofthe Company's fiscal year 1998 

evergreen grant, all ofVitesse's other evergreen grants confonned to APB 25. The memo 

concludes that the 1998 evergreen grant had been inadvertently misdated to the same grant date 

as that year's directors' grant, and that the resulting unrecorded compensation expense was 

immaterial. Six days later, Tomasetta signed and certified Vitesse's fiscal 2005 Form 10-K 

which failed to properly record or disclose the compensation costs from the grants he and 

Hovanec had previously backdated. The following day, on December 13, Vitesse filed its 2005 

Form 10-K with the Commission. 

116. During February and March 2006, the Journal began contacting Vitesse's 

directors to discuss the Company's option grant practices. In-a series ofemails between 

Tomasetta, Hovanec, Modyand severalofVitesse's directors, Tomasetta and Hovanec both 

falsely stated, in substance, that Vitesse set the exercise price ofthe Company's stock options 

according to the closing price ofthe stock on the date the directors approved the options. On 

March 18, 2006, the Journal published an article raising questions ofpossible backdating of 
• .~.'j 

CEO option grants at a number ofpliblic comPanies, including Vitesse. 

117. In early April 2006, a Special Committee ofVitesse's board hired the Special 

Committee Counsel to investigate the Company's prior stock option grants. Early in the 

investigation, Tomasetla and Hovanec tried to make it appear as though the two 2001 

Compensation Committee meeting minutes they had created in November 2005 had been 

43
 



prepared contemporaneously with their purported meeting dates. On April 12, Hovanec typed . 

these two sets ofminutes on Tomasetta's computer. Tom~setta and Mody copied them to a disc, 

and then from this disc Tomasetta copied them onto the Assistant's computer. With Mody and 

Hovanec watching, Tomasetta turned back the clock on the Assistant's computer so that the 

creation date for these two documents would match the oldest creation date associated with other 

meeting minutes found on the Assistant's computer. Tomasettaadmitted to Special Committee 

Counsel that he had told Hovanec and Mody that this conduct "is the Martha Stewart thing, this 

is dumb, we need to stop - we're going to go tojail." 

118. Tomasetta eventually admitted to Special Committee Counsel the above facts 

. .	 . 

concerning the recent creation and signing ofthe April 6 and October 2,2001 minutes, including 

inserting them on the Assistant's computer and his comment about Martha Stewart and going to 

jail. Despite his admissions, Tomasetta falsely maintained that Vitesse had actually held 

Compensation Committee meetings on April 6 and October 2, 2001. Tomasetta also failed to 

acknowledge to Special Committee Counsel that he had entered the April 6 and OCtober 2, 2001 

Committee meeting dates in his Palm Pilot in November 2005. 

C.	 THE INDIVIDUAL DEFENDANTS CAUSED VITESSE TO FILE MATERIALLY 
FALSE AND MISLEADING FINANCIAL STATEMENTS AND OTHER 
FILINGS· 

1.	 Annual Reports, Quarterly~eports,Registration Statements,· 
.• and Sarbanes-Oxley Certifi~ations .~ . 

119. Asa public company, Vitesse filed annual reports with the Corrimission that 

included audited financial statements certified by the Company's Auditor. As a result of the 

revenue and options backdating schemes alleged above, and in furtherance ofsuch schemes; 

each ofVitesse's 10 annual reports on Forms 10-K for fiscal years ended September 30, 1996 to 

September 30,2005 was false and misleading, as set forth below. Each ofthese annual reports 

44
 



failed to include compensation expense for backdated and/or repriced stock option grants, and 

contained false and misleading accounting and other disclosures related to stock option grants.. 

Further, each ofVitesse's five Forms lO-K for fiscal years 2001 to 2005 improperly reported 

revenue resulting from the revenue recognition fraud, and contained false and misleading 

disclosures related to Vitesse's revenue recognition practices. 

120. In each ofitsalmual reports on Form 10-K for Vitesse's fiscal years ended 

September 30, 1996 through September 30,2005 filed on October 25, 1996, December 29, 1997, 

December 23, 1998, December 23, 1999, December 19,2000, December 17, 2001, December 

18, 2002, December 16, 2003, December 10, 2004, and December 13, 2005, Vitesse disclosed 

that it accounted for stock options in accordance with APB 25. In each of its annual reports on 

Form lO-K filed on December 19, 2000, December 17,2001, Dec.ember 18, 2002, December 16, 

2003, December 10, 2004, and December 14, 2005, Vitesse disclosed that it complied with FIN 

44 and that it records compensation expense for stock options only ifthe marketprice ofthe 

company's stock exceeds the exercise price on the date ofgrant. In each ofthese annual reports, 

Vitesse did not report any compensation expense for stock options that it granted to employees, 

under the company's shareholder approved stock option plans, with an exercise price below the 

company's stock price on the date ofgrant. 

121. In its annual report on Form 10:-:K filed on October 25,1996, Vitesse disclosed 
. . /";. ~ . 

that under the Company's shareholder approved 1991 Stock Option PlaIi the exercise price for all 

stock options must be equal to the fair market value of its stock on the date ofgrant. This Form 

lO-K also discloses that under the Company's shareholder approved 1989 StockOptionPlan the 

exercise price for all incentive stock options must be equal to the fair market value of its stock on 

the date ofgrant and the exercise price for nonstatutory stock options must be at least 85% ofthe 

45
 



fair market value ofthe Company's stock on the date ofgrant. In its annual reports on Form 10­

K filed on December 29, 1997, December 23, 1998, December 23, 1999, December 19, 2000, 

December 17, 2001, December 18, 2002, December 16,2003, December 10, 2004, and 

December 13, 2005, Vitesse disclosed that under all ofthe Company's shareholder approved 

stock option plans, ''The exercise price ofall stock options must be at least equal to the fair 

market values ofthe shares ofcommon stock on the date ofgrant." 

122. In its annual reports on Form 10-K filed on December 19, 2000 and December 17, 

2001, ViteSse disclosed that it recorded deferred compensation expense for stock options in 

connection with certain acquisitions. In its annual reports on Form 10-K filed on December 18, 

2002, December 16, 2003, and December 10, 2004, Vitesse disclosed that it incurred 

compensation expense as a result ofassuming the stock option plans, and related option grants, .. 

of certain companies that it had acquired. Vitesse disclosed in substantially similar words that, 

as a result, when reviewing such disclosed expense, "it appears that certain options were granted 

at less than fair market value, but which really represent grants given to employees ofthe 

acquired companies prior to their respective acquisitions by Vitesse. Other than the foregoing, 

all ofthe options grants made by Vitesse to employees and directors are granted at fair market 

value at the tirneofgrant." Further, Vitesse disclosed in its annual report on Form 10-K filed on 

December 10, 2004 and December 13, 20051h3t,~'We have no options granted to employees in 
'. . ...... 

which the market price ofthe underlying stock exceeded the exercise price on the date ofgrant." 

123. . Contrary to the representations that it made in paragraphs~~ 120-122, Vitesse, 

through the actions ofTomasetta and Hovanec, was incurring substantial compensation expense 

as a result ofgranting in-the-money employee stock options under the Company's shareholder 
. . 

approved 1989 Stock Option Plan, 1991 Stock Option Plan and 2001 Stock Incentive Plan. In 

46
 



the financial statements ofeach ofVitesse's Fonns 10-K for fiscal years ended September 30, 

1996 through September 30,2005, Vitesse failed to record approximately $184 millionin 

compensation expenses resulting from backdated and repriced option grants. These unrecorded 

expenses overstated Vitesse's annual pretax income or understated it annual pretax loss by 

between 1.7% and 45.7% in fiscal years 1996 through 2005, as identified specifically above, 

rendering the financial statements materially false and misleading. 

124. In its annual report on Form lO-K filed on December 17,2001 for the fiscal year 

ended September 30,2001, Vitesse also disclosed that its revenue recognition policy for product 
. . 

sales was: "Production revenue is recognized when products are shipped to customers, w~ch is 

when title and risk ofloss transfers to the customer." Vitesse's annual reports on Form 10-K for 

the subsequent fiscal years 2002 through 2005 filed with the Commission on December 18, 

2002, December 16, 2003, December 10,2004, and December 14, 2005 state that Vitesse 

accounted for revenue from product sales as follows: "Production revenue is recognized when 

persllasive evidence ofan arrangement exists, the sales price is fixed, products are shipped to 

customers, which is when title and risk ofloss transfers to the customer, and collectability is 

reasonably assured." Each ofVitesse's annual reports for fiscal years 2001 through 2005 also 

state in substantially similar terms related to product sales to Nu Horizons, "Certain ofthe 

Company's production revenue are made to a..PJajor distributor under an agreement allowing for 
)' ...... 

price protection and right ofreturn on products unsold. Accordingly, the Company defers 

recognition ofrevenue on such products until the products are sold by the distributor to the end 

user." 

125. Contrary to the representations that it made in~ 124,Vitesse improperly recorded 

revenue in material amounts in each of the financial statements included inthese annual reports 

47
 



on Form 10-K for its fiscal years 2001 through 2005, rendering the revenue and income reported 

in those financial statements, and the revenue recognition policies included in those reports for 

product sales and for sales to its major distributor, materially false and misleading. Vitesse also 

materially misstated the accounts receivable balances in the financial statements for certain of 

these years. 

126. Tomasetta reviewed and signed each ofVitesse's annual reports on Form lO-K 

for the fiscal year~ 1996 through 2005 referenced in ~~ 120-124. Hovanec reviewed and signed 

each ofVitesse's annual reports on Form 10-K for fiscal years 1996 through 2004. Mody 

participated in preparing and reviewed each ofVitesse's annual reports on Form 10-K for fiscal 

years 2001 through 2005, and he signed the annual report on Form 10-K for fiscal year 2005. 

Kaplan participated in preparing and reviewed each ofVitesse's annual reports on Form 10-K for 

fiscal years 2001 through 2005. 

127. Tomasetta and Hovanec knew, should have known, or were reckless in not 

kpowing that each ofthe foregoing annual reports that they signed· and reviewed materially 

misrepresented Vitesse's revenues, stock-based compensation expense, income, and in certain 

years accounts receivable, and made materially false and misleading disclosures and omitted 

material infonnation about Vitesse's revenue recognition and stock option practices and policies. 

128.	 Modyand Kaplan knew, shou,l,d4lave known, or were reckless in not knowing that 

-
each of the foregoing annual reports that they participated in preparing, reviewed, and/or signed 

materially misrepresented Vitesse's revenues, income, and accounts receivable, and made 

materiallyfalse and misleading disclosures and omitted material information about Vitesse's 

revenue recognition practices and policies. 

48
 



129. In addition, Vitesse filed 30 quarterly reports on Forms 10-Q between June 24, 

1996 and February 8, 2006, which falsely reflect that Vitesse. incurred no compensation expense 

for options granted to employees with exercise prices below the company's stock price on the 

date ofgrant and for options that Were repriced. Nine ofVitesse's Forms 10-Q, filed from May 

13, 2003 to February 8, 2006, falsely state that the Company applied APB 25 during the relevant 

time, and six of its Forms 10-Q, filed from February 13, 2004 to August 9,2005, falsely state 

that Vitesse did not grant in-the-money options. 

. . . 

130. Thirteen ofVitesse's Forms lO-Q, filed from February 2002 to February 2006, 

falsely reflect overstated revenue, and thus income, and certain ofthese reports also contain 

overstated accounts receivable balances as a result ofVitesse's improper revenue recognition 

practices~ Each ofthe 12 quarterly reports filed during March 31,2002 through February 2006 

also contain false and misleading revenue recognition policy disclosures that state in 

substantially similar terms that Vitesse recogniZes product revenue when "products are shipped 

to customers, which is when title and risk ofloss transfers to the customers." The four quarterly 

reports filed between February 2005 and February 2006 also contain the following false and 

misleading disclosure related to product sales to Nu Horizons: "Certain ofthe Company's 

production revenue are madeto a major distributor under lin agreement allowing for price 

protection and right ofreturn on products urts,o~.. Accordingly, the Company defers recognition 
. .! "~ . 

ofrevenue on such products until the products are sold by the distl:ibutor to the end user." 

131. Tbmasetta reviewed all 30 ofthesequarterly reports on Form 10-Q. Hovanec 

reviewed and signed each of the 27 Vitesse quarterly reports filed with the Commission between 

June 24, 1996 and February 8, 2005. Mody participated in preparing and reviewed each ofthe 

quarterly reports that Vitesse filed with the Commission from February 14,2002 through 

49
 



February 8, 2006, and he signed the quarterly reports filed from May 2005 through February 8, 

2006. Kaplan participated in preparing each ofthe quarterly reports filed with the Commission 

from February 14, 2002 through February 8,2006. 

132. Tomasetta and Hovanec knew; should have known, or were reckless in not 

knowing that each ofthe foregoing quarterly reports that they signed and/or reviewed materially 

misrepresented Vitesse's revenues, stock-based compensation expense, income, and in certain 

quarters accounts receivable, and made materially false and misleading disclosures and omitted 

material information about Vitesse's revenue recognition and stock option practices and policies. 

i33. Modyand Kaplan knew, should have known, or were reckless in not knowing that 

each ofthe foregoing quarterly reports that they participated in preparing, reviewed, and/or 

signed materially misrepresented Vitesse's revenues, income, and in certain periods accounts 

receivable, and made materially false and misleading'disclosures and omitted material 

information about Vitesse's revenue recognition practices and policies. 

134. Tomasetta signed Sarbanes-Oxley 302 certifications forthe annual reports on 

Form 10-K for fiscal years 2002.. 2003, 2004 and 2005, and for ten quarterly reports on Form 10­

Q filed on February 14, 2003 through February 8,2006. Hovanec signed Sarbanes-Oxley 302 

certifications for the annual reports on Form 10-K for fiscal years 2002, 2003, and 2004, and for 

seven quarterly reports on Form 10.;Q filed o~ ~ebruary 14; 2003 through February 8, 2005. . 
. • _.J : .~ 

. Mody signed Sarbanes-Oxley 302 certificatio~ for the annual report on Form 10-K for fiscal 

year 2005, and for three quarterlyreports on Form 1Q-Q filed between May 10, 2005 through 

February 8, 2006. 

135. The foregoing certifications that Tomasetta, Hovanec, and Mody signed 

referenced in ~ 134, state that they had reviewed the report and that (a) the report did not contain 

50
 



any untrue statement ofa material fact or omit to state a material fact necessary to make the 

statements made, in light ofthe circumstances under which such statements were made, not 

misleading; (b) the financial statements, and other fmancial information included in each report, 

fairly presented in all material respects the financial condition, results ofoperations, and cash 

flows ofVitesse as o~ and for, the period presented in the report; and that (c) Tomasetta, 

Hovanec and Mody had disclosed to Vitesse's auditors all significant deficiencies in the design 

or operation ofVitesse's internal controls and any fraud, whether or not material, that involved 

management or other employees who had a significant role in Vitesse's internal controls. 

Tomasetta, Hovanec and Mody had ample information at the time that they signed these 

certifications to know that they were not true. 

136. Between October 23, 1996 and March 23,2006, Vitesse filed atotal of37 

registration statements, that incorporated by reference materially false and misleading financial 

statements, as well as materially false and misleading disclosures from Vitesse's annual reports 

on Form 10-I<., quarterly reports on Form 10-Q and proxy statements. Sixteen ofthese 

registration statements were filed on Forms S-3 or S-3/A, and 21 were filed on Forms S-8 or S-8 

POS. Vitesse also filed a prospectus supplement on February 6,2006, which incorporates by 

reference Vitesse's Form IO-K filed on December 10, 2004, and Vitesse's Forms 10-Q filed on . 

February 8,2005 and May 10, 2005. TQma~etta and Iiovanec signed each of the 16 Forms S-3 

or S-3/Athat Vitesse filed on October 23, 1996, February 19, 1999, April 8, 1999, October 22, 

1999, November 4, 1999, November 24, 1999, February 15, 2000, June 7,2000 (two S-3s), 

September 5,2000, December 20,2000, May 23,2001, June 11, 2001, May 12, 2003, December 

29,2004 and March 16~ 2005. Tomasetta and Hovanec also signed each ofthe 19 Forms S-8 or 

S-8 POS that Vitesse filed from May 22, 1998 through November 23, 2004. Tomasetta and 

-51
 



Mody each signed two Fonns S-8 that Vitesse filed on November 30, 2005 and March 23, 2006. 

Kaplan participated in preparing various of these registration statements during late 2001 through 

at least 2005. 

137. Tomasetta, Hovanec, and Mody knew, should have known, or were reckless in 

not knowing that these registrations statements were false and misleading by their incorporation 

ofmaterially false and misleading financial statements and stock option and revenue recognition . 

disclosures from Vitesse's annual reports on Form 10-K, quarterly reports on Form lO-Q, and/or 

proxy statements. 

2. Fonns 4 and 5 and Proxy Statements 

138. In addition, Torriasetta and Hovanec filed Fonns 4 and 5 with the Commission in 

connection with stock option grants that each received. Tomasetta and Hovanec permitted false 

and misleading statements to.be made in those filings. The Fonns 4 and 5 were false in that they 

reported as a ''transaction date" the purported dates ofstock option grants when in fact options 

were never granted on those transaction dates. The false information with respect to the 

''transaction date" permitted Tomasetta and Hovanec to conceal the compensation that they 

received through the grant of in-the-money options. The Fonns 4 were also misleading in that 

they disclosed an "expiration date," which under V~tesse's various option plans was required to 

be ten years from the date ofgrant, that sugg~~aparticular date ofgrant for stock option 
J: .' 

grants when in fact options were never granted-on the date implied by the expiration date. The 

fonns filed were as follows (share totals are adjusted for stock splits in 1997, 1998 and 1999): 

Filer Date ofFiling Form 
False 

Transaction 
Date 

Purported 
Option Grant 

Expiration 
Date 

Total 
Shares' 

Tomasetta 10/7/96 4 1/23/96 1/23/06 300,000 
Tomasetta 8/8/97 4 3/19/97 3/19/07 600,000 

52
 



Tomasetta 5/8/98 4 1/1/98 1/1/08 900,000 
Tomasetta 4/9/99 4 10/5/98 10/5/08 760,000 
Tomasetta 10/30/01 5 4/6/01 4/6/11 1,200,000 
Tomasetta 3/8/02 4 10/2/01 10/2/11 720,000 
Tomasetta 8/14/02 4 10/2/01 10/2/11 1,205,048 
Tomasetta 8/28/02 4 10/2/01 10/2/11 1,205,048 
TomaSetta 10/22/03 4 10/20/03 10/20/2013 .950,000 

Hovanec 9/10/96 4 1/23/96 1/23/06 180,000 
Hovanec. 5/8/98 4 1/1/98 ·1/1/08 210,000 
Hovanec 3/10/99 4 10/5/98 10/05/08 160,000 
Hovanec 10/30/01 5 4/6/01 4/6/11 300,000 
Hovanec 3/8/02 4 10/2/01 10/2/11 230,000 
Hovanec 8/14/02 4 10/2/OJ 10/2/11 303,245 
Hovanec 10/22/03 4 10/20/03 10/20/2013 250,000 

139. Tomasetta and Hovanec knew, should have known, or were reckless in not 

knowing that they made materially false and misleading statements and disclosures in these 

filings that they reviewed and/or signed. 

140. Vitesse also filed proxy statements with the Commission on December 18, 2002 

and December 10, 2004, wherein it solicited proxies to reelect Tomasetta and other directors to 

Vitesse's Board ofDirectors. These proxy statements disclose false grant dates for stock options 

issued to named executive officers including Tomasetta and Hovanec. The proxy statement filed 

on December 18, 2002 falsely states that stock options were granted to named executive officers 

on October 2, 2001, and the proxy statement filzd,on Dec~Jllber 10, 2004 falsely states that stock 
.... ; 

.' 
options were granted to named executive officers on October 20,2003. The information 

relating to executive compensation and stock option grants reported in the proxy statements was 

incorporated by reference into the annual reports on Form 10-K signed by Tomasetta and/or 

Hovanec and/or Mody during this period. 

141.· As a result of the misconduct ofTomasetta and Hovanec, Vitesse's books and 

records falsely and inaccurately reflected, among other things, the grant dates ofstock options, 

53
 



revenues, stock-based Compensation expense, income, and accounts receivable, and the 

Company's financial condition. Additionally, Tomasetta and Hovanec circumvented internal 

accounting controls and, by virtue oftheir misconduct, failed to maintain a system of internal 

accounting controls sufficient to provide assurances that stock option grants, revenues, income, 

and accounts receivable were accurately recorded to permit the proper preparation of financial 

statements in conformity with GAAP. 

142. As a result ofthe misconduct ofMody and Kap1ari, Vitesse's books and records 

falsely and inaccurately reflected, among other things, revenues, stock-based compensation 

expense, income, and accounts receivable, and the Company's fmancial condition. Additionally, 

Modyand Kaplan circumvented internal accounting controls and, by virtue oftheir misconduct, 

failed to maintain a system of internal accounting controls sufficient to provide assurances that 

the Company's revenues, income, and accounts receivable were accurately recorded to permit 

the proper preparation of financial statements in conformity with GAAP. 

D. MISREPRESENTATIONS TO VITESSE'S AUDITOR 

143. In addition to the conduct alleged above by which Tomasetta, Hovanec, Mody, 

and Kaplan each engaged in conduct to mislead Vitesse's Auditor and to conceal their fraud 

through the falsification ofdocuments, among other actions, each ofthem also·· knowingly made 

false and Inis1eading representations to the Ay.ditor in management representations letters that 
. .... 

they signed and provided to the Auditor. These letters were provided to the Auditor in the course· 

if its annual audits and quarterly reviews 0 f the Company's financial statements, among other 

reasons. 

144. In substantially similar words, the letters Tomasetta, Hovanec, Mody, and 

Kaplan signed and provided to the Auditor in connection with audits or reviews ofthe 

54
 



Company's fmancial statements during the period from 1996 through 2006 contain the following. 

acknowledgements: 

145. "We acknowledge our responsibility for the design and implementation of 

.programs and controls to prevent, deter and detect fraud.	 We understand that the term 'fraud' 

includes misstatements arising from fraudulent financial reporting." and that "[m]isstatements 

arising from fraudulent financial reporting ate intentional misstatements, or omissions of 

amounts or disclosures in financial statements to deceive financial statement users." 

146. "[W]e confirm we are responsible for the fair presentation in the consolidated 

financial statements of financial position." 

147. "We accept and acknowledge our responsibility for establishing and maintaining 

effective internal control over financial reporting." 

148. Each ofthese management letters also contains affmnative representations in 

respect to the Company's financial statements, financial records, transactions, and possible fraud 

by management or employees, as follows: 

149. "The consolidated financial statements referred to above are fairly presented in 

conformity with accepted accounting principles generally accepted in the United States of 

America." 

150. ''We have made available to yoli..'. all financial records and related data" ..). . -..... 

151. ''There are no ... material transactions that have not been properly recorded in the 

accounting records underlying the consolidated financial statements" 

152. "We have no knowledge ofany fraud or suspected fraud affecting the entity 

involving: (a) management; (b) employees who have significant roles in internal control, or (c) 

others where the fraud could have a material effect on the consolidated financial statements." 

55
 



153. These representations were false, as Torriasetta, Hovanec, Mody, and Kaplan each 

knew as a result of the revenue recognition fraud each of them engaged in and as a result ofthe 

stock option backdating fraud Tomasetta and Hovanec perpetrated, as detailed in this Complaint. 

154. Tomasetta, Hovanec, Mody, and Kaplan also falsely stated in management 

representation letters provided to the Auditor during January 2002 through January 2006 that, 

''There have been no false statements affecting the Company's consolidated financial statements 

made to you." 

155. In management representation letters for fiscalyears 2001 through 2005, 

Tomasetta, Hovanec, Mody, and/or Kaplan represented in substantially similarwords that, 

"Receivables reported in the consolidated financial statements represerit valid claims against 

debtors for sales or other charges arising on or before the balance-sheet date and have been 

appropriately reduced to their estimated net realizable value." Tomasetta, Hovanec, Mody, 

and/or Kaplan knew that this representation was false as a result oftheir fraudulent revenue 

recognition practices. 

156. In management representation letters for fiscal years 1999 through 2005, with the 

exception of fiscal year 2002, Tomasetta and/or Hovanec falsely represented in substantially 

similar words that, "(s)tock-related awards to employees have been accounted for in accordance 

with the provisionS ofAPB Opinion No. 25, ,A6countingf6r Stock Issued to Employees. 
.: . .......
 

157. Tomasetta knowingly signed false management representation letters for annual 

audits covering fiscal years 1996 through 1999 an~ 2005, and for quarterly reviews in 2005 and 

2006. The letters for the annual audits are dated December 12, 2005, October 14, 1999, October 

14, 1998, Odober 21, 1997, and October 18, 1996. The letters for the quarterly reviews are 

dated January 23,2006 and July 20,2005. 

56 



158. Hovanec knowingly signed false management representation letters for annual 

audits covering fiscal years 1996 through 2004, and numerous quarterly reviews from at least 

1999 through 2005. These letters for the annual audits are dated, October 28, 2004, October 23, 

2003, October 18,2002, October 19, 2001, October 16, 2000, October 14, 1999, October 14, 

1998~ October 21, 1997, and October 18, 1996. The letters for the quarterly reviews are dated 

Apri121, 2005, January 18, 2005, April 22, 2004, February 11, 2004, July 21,2003, April 21, 

2003, January 24,2002, July 17,.2002, July 13, 2001, January 19, 2001, August 14,2000, May 

12, 2000, January 7, 2000, and April 7, 1999. 

159. Mody knowingly signed false management representation letters for annual audits 

covering fiscal years 2001 through 2005, and for quarterly reviews during 2002 through January 

2006. These letters for the annual audits are dated December 12, 2005, October 28, 2004, 

October 23,2003, October 18, 2002, and October 19, 2001. The letters for the quarterly reviews 

. are dated January 23,2006, July 20,2005, Apri121, 2005, January 18, 2005, July 16, 2004, April 

22,2004, February 11, 2004, July 21,2003, April 21, 2003, July 17, 2002, and January 24,2002. 

160. Kaplan knowingly signed a false management representation letter for the fiscal 

2005 annual audit dated December 12, 2005. 

161. Each of the.defendants also provided false management representation letters to 

the Auditor that reaffinned certain ofthese ag~e·letters in connection with annual audits. Each 
.	 .! .. "­

ofthe defendants also provided such letters in connection with the Auditors review and inclusion 

oftheir audit reportsin Vitesse registration statements fot securities offerings. 

E.	 TOMASETTA, HOVANEC, MODY AND KAPLAN PROFITED
 
FROM THEIR SCHEMES
 

162. Tomasetta, Hovanec, Mody, and Kaplan profited from their misconduct. 

Tomasetta and Hovanec personally benefited from their options backdating scheme by awarding 

57
 



themselves in millions ofdollars in potential profit as a result ofthe in-the-money options that 

they received. By exercising backdated options, each of them also actually reaped tangible 

fmancial benefits from their fraud in the amounts ofmillions ofdollars. 

163. Tomasetta and Hovanec obtained additional profits through the sale ofshares of 

Vitesse stock, acquired largely through their exercises ofVitesse stock options, which they sold 

into the market at times when the price ofthe Company's stock was inflated by the fraud. 

164. - Tomasetta, Hovanec, Mody, and Kaplan also each profited by receiving cash 

bonuses during their fraudulent conduct. Bonuses received by Tomasetta and Hovanec were in 

part based on achieving financial targets, including operating income targets. -IfVitesse had 

properly recorded compensation expense for the option grants that Tomasetta and Hovanec had 

backdated and repriced, then it would have recorded lower operating income results and 

Tomasetta and Hovanec would have received smaller bonuses. In addition, bonu~es awarded to 

or paid to Tomasetta, Hovanec, Mody, and Kaplan during their fraud were based upon bonus 

plans that provided that no bonUs award was considered earned, but instead was totally 

dependent on the officer remaining an employee at the tjrne the bonus payments vested and were 

made, which was typically in one or more installments during subsequent years. Tomasetta's, 

Hovanec's, Mody's, and Kaplan's continued employment during their fraud therefore allowed 

each ofthem to receive their bonus payments.. _JIad Vitesse's Board ofDirectors discovered their 
i": . 

fraud earlier and terminated them, Tomasetta,Hovanec, Mody, and Kaplan would not have 

-received their bonus payments. 

58
 



FIRST CLAIM FOR RELIEF 

Violations of Exchange Act Section lOeb) and Exchange Act Rule IOb-S 
(AIIOefendants) 

165. The Commission realleges and incorporates by reference Paragraphs 1 through 

164. 

166. Vitesse, Tomasetta, Hovanec, Mody, and Kaplan, directly or indirectly, by the use 

ofthe means or instrumentalities of interstate commerce, orofthe mails, or ofa facility ofa. 

national securities exchange, in connection with the purchase or sale ofsecurities, and with 

knowledge or recklessness: (a) employed devices, schemes, or artifices to defraud; (b) made 

untrue statements ofmaterial fact or omitted to state a material fact necessary to make the 

statements made, in light ofthe circumstances under which they were made, not misleading; and 

(c) engaged in acts, transactions, practices or courses ofbusiness that operated or would operate 

as a fraud or deceit upon other persons. 

167. By engaging in the conduct alleged above, Vitesse, Tomasetta, Hovanec, Mody 

and Kaplan, and each ofthem, directly or indirectly, violated, and unless restrained and enjoined 

will continue to violate, Section 10(b) ofthe Exchange Act and Exchange Act Rule 10b-5 [15 

U.S.c. § 78j(b); 17 C.F.R. § 240.10b-5]. 

SECOND CLAIM-FOR RELIEF 
:i ".. '.". 

,l';--} ""­

Violations ofSecurities Act Section 17(a) 
(All Defendants) 

168. The Commission realleges and incorporates by reference Paragraphs 1 through 

164. 

169. Vitesse, Tomasetta,.Hovanec, Modyand Kaplan, directly or indirectly, by use of 

the means or instruments of interstate commerce or ofthe mails, in connection with the offer or 

59
 



sale ofsecurities, and with knowledge, recklessness, Of negligence: 1) employed devices, 

schemes, or artifices to defraud; 2) obtained money or property by means ofuntrue statements of 

material fact or by omitting to state material facts necessary in order to make the statements 

made., in light ofthe circumstances under which they were made, not misleading; or 3) engaged 

in transactions, practices or courses ofbusiness which operated or would operate as a fraud or 

deceit upon purchasersofVitesse securities. 

170. By engaging in the conduct alleged above, Vitesse, Tomasetta, Hovanec, Mody, 

and Kaplan, and each ofthem, directly or indirectly, violated, andunless restrained and enjoined 

will continue to violate, Sections 17(a)(1), (2), and (3) of the Securities Act [15 U.S.C.§ 

77q(a)(1), (2), and (3)]. 

THIRD CLAIM FOR RELIEF
 

Viobitions of Securities Act Section 13(b)(S) and Exchange Act 13b2-1
 
(Tomasetta, Hovanec, Mody, and Kaplan)
 

171. The Commission realleges and incorporates by reference Paragraphs 1 through 

164. 

. 172. By engaging in the conduct alleged above, Tomasetta, Hovanec, Mody, and 

Kaplan knowingly falsified books, records and accounts at Vitesse, and knowingly circumvente.d 

or knowingly failed to implement a system of internal-accounting controls at Vitesse subject to 
4- ..., t•••• 

Section 13(b)(2)(A) ofthe Exchange Act [ls\is.c. f78m(b)(2)(A)]. 

173. By engaging in the conduct alle.ged above, Tomasetta, Hovanec, Mody, and 

Kaplan, directly or indirectly, falsified or caused to be falsified, books, records or accounts 

subject to 15 U.S.C. § 78m(b)(2)(A). 

174. By reason of the foregoing, Tomasetta, Hovanec, Mody, and Kaplan, and each of 

them, directly or indirectly, have violated, and unless restrained and enjoined will continue to 

60violate, Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1 [15 U.S.c. § 

78m(b)(5); 17 C.F.R. § 240. 13b2-1 ] . 

FOURTH CLAIM FOR RELIEF 

Violations of Exchange Act Rule 13b2-2 
(Tomasetta, Hovan~c, Mody; and Kaplan) 

175. The Commission realleges and incorporates by reference Paragraphs 1 through 

164. 

176. Rule 13b2~2 ofthe Exchange Act [17 C.F.R. § 240. 13b2-2], in relevant part, 

makes it unlawful for an officer or director ofan issuer to, directly or indirectly: (1) make or 

cause to be made a materially false or misleading statement to an accountant in connection with 

any audit, review or examination 0 f financial statements, or the preparation or filing 0 f any 

document or report required to be filed with the Commission; or (2) omit or state, or cause 

another person to omit or state, any material fact necessary in order to make statements made, in 

light ofthe circumstances under which they were made, not misleading, to an accountant in 

connection with: (i) any -audit, review or examination ofthe financial statements ofthe issuer, or 

(ii) the preparation or filing of any document or report required to be filed with the Commission. 

177. By reason of the foregoing, Tomasetta, Hovanec,Modyand Kaplan, and each of 

_them, directly or indirectly, violated,and unless restrained and enjoined will continue to violate, 
:i . .' 

. i':~' . ~ 

Exchange Act Rule 13b2-2 [17 C.F.R. § 240J}b2-2].... 

FIFTH CLAIM FOR-RELIEF 

- Violations of Exchange Act Section 14(a) and Exchange Act Rule 14a-9 
(Vitesse and Tomasetta) 

178. The Commission realleges and incorporates by reference Paragraphs 1_ through 

164. 

61 



· 179. Vitesse and Tomasetta, directly or indirectly, by use ofthe means or instruments 

of interstate commerce or ofthe mails, or ofthe facility ofa national securities exchange, 

knowingly, recklessly, or negligently solicited proxies by means ofa proxy statement, form of 

proxy, notice ofmeeting or other communica,tion, written or oral, containing statements which, 

at the time and in light ofthe circumstances under which they were made, were false and 

misleading with respect to material facts, or which omitted to state material facts which were 

necessary in order to make the statements made not false or misleading or which were necessary 

in order to correct statements in earlier false or misleading communications with respect to the 

solicitation ofproxies for the same meeting or subject matter, in violation ofSection 14(a) ofthe 

Exchange Act and Exchange Act Rule 14a-9 [15 U.S.C. § 78n(a); 17 c.P.R. § 240.14a-9]. 

180. .By reason ofthe foregoing, Vitesseand Tomasetta, directly or indirectly, violated, 

and unless restrained and enjoined will continue to violate, Section 14(a) of the Exchange Act 

and Exchange Act Rule 14a-9 [15 U.S.C. § 78n(a); 17 C.F.R. § 240.14a-9]. 

SIXTH CLAIM FORRELIEF
 

Vitesse's Violations of Exchange Act Sections 13(a) and
 
Exchange Act Rules 12b-20, 13a-1, and 13a-13,
 

and Aiding and Abetting These Violations
 
by Tomasetta, Hovanec, Mody, and Kaplan
 

181. The Commission realleges and incorporates by reference Paragraphs 1 through 

164. 

182. Section 13(a) ofthe Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 

13a-1 and 13a-13 [17 C.F.R. §§ 240. 13a-l and 240.13a-13] require issuers ofregistered 

securities to file with the Commission factually accurate annual and quarterly reports. Exchange 

Act Rule 12b-20 [17 C.P.R. §240.12b-20] further provides that, in addition to the information 

expressly required to be included in a statement or report, there shall be added such further 

62
 



material infonnation, if any, as may be necessary to make the required statements, in the light of 

the circumstances under which they were made, not misleading. 

183. By engaging in the conduct set forth above, Vitesse violated, and unless restrained 

and enjoined will coritinue to violate Section 13(a) ofthe Exchange Act [15 U.S.C. § 78m(a)] 

and Exchange Act Rules 12b-20,13a-l and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-l, and 

240. 13a-13]. 

. 184. By engaging in the conduct set forth above, Tomasetta, Hovanec, Mody, and
 

Kaplan, and each ofthem, knowingly provided substantial assistance to Vitesse in its failure to
 

file with Commission factually accurate annual and quarterly reports.
 

185. As set forth above, Tomasetta, Hovanec, Mody, and Kaplan aided and abetted,
 

an4 unless restrained and enjoined will continue to aid and abet, violations ofExchange Act
 

Section 13(a) [15 U.S.C. § 78m(a)] and Exchange Act Rules 12b-20, 13a-l and 13a-13 [17
 

C.F.R. §§ 240. 12b-20, 240.13a-l, and 240.13a-13]. 

SEVENTH CLAIM FOR RELIEF 

Vitesse's Violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B)
 
and Aiding and Abetting These Violations
 

byTomasetta, Hovanec, Mody, and Kaplan
 

186. The Comrn:ission realleges and incorporates by reference Paragraphs 1 through 

.'164. ....... ~
 

187. Section 13(b)(2)(A) ofthe Exchange Act [15 U.S.C. § 78m(b)(2)(A)] requires
 

issuers to make and keep books, records, and accounts which, in reasonable detail, accurately
 

. and fairly reflect the transactions and dispositions of its assets. Section 13(b)(2)(B) ofthe 

Exchange Act [15 U.S.C. § 78in(b)(2)(B)] requires issuers to devise and maintain a system of 

internal accounting controls sufficient to provide reasonable assurances that transactions were 

63
 



recorded as necessary to pennit preparation of financial statements in conformity with GAAP
 

and to maintain the accountability ofassetS.
 

188. Vitesse failed: 1) to make and keep books, records, and accounts which, in 

reasonable detail, accurately and fairly reflect the transactions and dispositions of its assets; and 

2) to devise and maintain a system of internal accounting controls sufficient to provide 

reasonable assurances that transactions were recorded as necessary to pennit preparation of 

financial statements in confonnity with GAAP and to maintain the accountability ofassets. 

189. By reason of the foregoing, Vitesse, directly or indirectly, violated, and unless 

. restrained and enjoined will continue to violate Sections 13(b)(2)(A) and 13(b)(2)(B) ofthe 

Exchange Act [15 U.S.c. §§ 78m(b)(2)(A) and 78m(b)(2)(B)]. 

190. By reason of the foregoing, Tomasetta, Hovanec, Mody, and Kaplan knowIngly 

or recklessly gave substantial assistance to Vitesse in its failure to make and keep accurate 

books, records, and accounts and its failure to devise and maintain a sufficient system of internal 

accounting controls. 

191. As set forth above, defendants Tomasetta, Hovanec, Mody, and Kaplan, and each 

ofthem, directly or indirectly, aided and abetted, and unless restrained and enjoined will 

continue to aid and abet, violations ofSections 13(b)(2)(A) and 13(b)(2)(B) [15 U.S.C. §§ 

78m(b)(2)(A) and 78m(b)(2)(B)]. .i. '.-> 
f":··· -) 

-
EIGHTH CLAIM FOR RELIEF 

Violations of Exchange Act Rule 13a-14 
(Tomasetta, Hovanec, and Mody) 

192. The Commission realleges and incorporates by reference Paragraphs 1· through 

164. 

64 



193. Tomasetta, as CEO, signed false certifications pursuant to Rule 13a-14 ofthe 

Exchange Act that were included in Vitesse's fiscal 2002, 2003, 2004, and 2005 annual reports, 

as well as ten quarterly reports on Fonn 10-Q filed between February 14, 2003 through February 

8,2006. Hovanec, as CFO, signed false certifications pursuant to Rule 13a-14 ofthe Exchange 

Act that were included in Vitesse's fiscal 2002, 2003, and 2004 annual reports, as well as seven 

quarterly reports on Fonn 10-Q filed between Febniary 14, 2003 through February 8,2005. 

Mody, as CFO,signed false certifications pursuant to Rule 13a-14 ofthe Exchange Act that were 

included in Vitesse's fiscal 2005 annual repQrt, as well as quarterly reports three quarterly 

reports on Fonn 10-Q filed between May 10, 2005 through February 8, 2006. . 

.194. By reason ofthe foregoing, Tomasetta, Hovanec, and Mody, and each ofthem, 

violated, and unless restrained and enjoined will·continue to violate, Exchange Act Rule 13a-14 

[17 C.F.R § 240. 13a-14]. 

NINTH CLAIM FOR RELIEF
 

Violations of Exchange Act Section 16(a) and Exchange Act Rule 16a-3
 
(Tomasetta and Hovanec)
 

195. The Commission realleges and incorporates by reference Paragraphs 1 through 

164. 

196. At all relevant times, defendants Tomasetta and Hovanec were officers ofVitesse 
:i. . '.-:­..' ~ . ;. 

within the meaning of Section 16(a)(1) of the Exchange Act[15 u.s.c. § 78p(a){I)]. 

197. Section 16(a) ofthe Exchange Act [15 U.S.C. § 78p(a)] and Exchange Act Rule 

16a-3 [17 C.F.R. § 240. 16a-3] require officers, directors and beneficial owners ofmore than ten 

percent ofany class ofequity security registered pursuant to Exchange Act Section 12[15 U.S.c. 

§ 781] to file periodic reports disclosing any change ofbeneficial ownership of those securities. 

65
 



198. Defendants Tomasetta and Hovanec filed Forms 4 with the Commission that 

misrepresented the purported grant dates ofbackdated options that they received. 

199. By reason ofthe foregoing, defendants Tomasetta and Hovanec, and each of 

them, violated, and unless restrained and enjoined will continue to violate, Section 16(a) of the 

Exchange Act and Exchange Act Rule 16a-3 [15 U.S.C. § 78p(a); 17 C.F.R § 240.16a-3]. 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that the Court enter a final judgment: 

I .. 

Permanently enjoining defendant Vitesse from violating, directly or indirectly, Section 

17(a) ofthe Securities Act and Sections 10(b), 13(a), 13(b)~2)(A), 13(b)(2)(B), and 14(a) ofthe 

Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 14a-9 thereunder; 

ll. 

Permanently enjoining defendant Tomasetta from violating, directly or indirectly, Section.· 

17(a) ofthe Securities Act and Sections 1O(b), 13(b)(5), 14(a), and 16(a) of the Exchange Act 

and Rules IOb-5, 13b2-1, 13b2-2, 13a-14, 14a-9, and 16a-J thereunder, and from aiding and 

abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) ofthe Exchange Act and 

Rules 12b-20, 13a-1, and 13a-13thereunder; 

IlL 
. i-:~' ., 

Permanently enjoining defendant Hov~ec from violating, directly or indirectly, Section 

17(a) ofthe Securities Act and Sections 1O(b), 13(b)(5), and 16(a) ofthe Exchange Act and 

Rules 10b-5, 13a-14, 13b2-1, 13b2-2, and 16a-3 thereunder, and from aiding and abetting 

violations ofSections 13(a), 13(b)(2)(A), and 13(b)(2)(B) ofthe Exchange Act and Rules 12b- . 

20, 13a-l, and 13a-13 thereunder; 

66 



IV.
 

Pennanently enjoining defendant Mody from violating, directly or indirectly, Section 

17(a) oftheSecurities Act and Sections IO(b) and 13(b)(5) ofthe Exchange Act and Rules lOb­

5, 13a-14, 13b2-l, and 13b2-2 thereunder, and fro.m aiding and abetting violations ofSections 

13(a), 13(b)(2)(A), and 13(b)(2)(B) ofthe Exchange Act and Rules l2b-20, 13a-l, and 13a-13 

thereunder; 

v. 

Pennanently enjoining defendant Kaplan from violating, directly or indirectly, Section 

l7(a) ofthe Securities Act and Sections lO(b) and l3(b)(5) ofthe Exchange Act and Rules lOb­

5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations ofSections 13(a), 

13(b)(2)(A), and 13(b)(2)(B) ofthe Exchange Act and Rules l2b-20, 13a-l, and 13a-13 

thereunder; 

VI. 

Ordering defendants Tomasetta, Hovanec, Modyand Kaplan, and each ofthem, to 

disgorge their ill-gotten gains by virtue ofthe conduct alleged herein, and to pay prejudgment 

interest thereon; 

VII. 

Ordering defendants Tomasetta, Hova,nec,·Mody and Kaplan, and each ofthem; to pay 
_.J ..~ 

civil money penalties pursuant to Section 20(d)(I) ofthe Securities Act and Section 21(d)(3) of 

the Exchange Act [15 U.S.C. § 77(d)(I); 15 U.S.C. § 78u(d)(3)]; 

67
 



. VIII. 

Pursuant to Section 21 (d)(2)ofthe Exchange Act [15 U.S.C. § 78u(d)(2)] bar defendants 

Tomasetta, Hovanec, and Mody, and each of them, from serving as officers or directors ofany 

issuer that has a class ofsecurities registered pursuant to Section 12 oftheExchange Act fl5 

U.S.C. § 781] or that is required to file reports pursuant to Section 15(d) ofthe Exchange Act [15 

U.S.C. § 780(d)]; and 

IX. 

Ordering such other relief as the Court deems just and proper. 

DEMAND FOR JURY TRIAL 

Under Rule 38 of the Federal Rules ofCivil Procedure, the Commission demands trial by 

jury in this actionofallissues so triable. 

Dated: December 9,2010 Respectfully submitted,
 
Washington, DC
 

Dean M. Conwa 
Richard E. Simpson RS-5859 
SECURlTIESAND EXCHANGE COMMISSION 
100 F Street, NE 
Washington, DC 20549-4030 . 
Telephone: (202) 551-4412 (Conway) 
Facsimile: (202) 772-9246 (Conway) 
E-mail:' [email protected] 

:i ...... ;, 

<C.ounselfor Plaintiff 

Ofcounsel: 

TimothyN. England 
. Margaret S. McGuire 
Deborah R Maisel 
Richard E. Dominguez 

68