The Five Dumbest Things on Wall Street This Week

4. Challenging

The chips are down at Vitesse (VTSS Quote).

The Camarillo, Calif., semiconductor company fired its CEO and two other execs Wednesday, as a stock-option scandal threatens to turn into a full-fledged accounting nightmare.

Vitesse said CEO Louis Tomasetta, CFO Yatin Mody and Executive VP Eugene Hovanec were terminated, as an internal probe of possible option backdating expanded to cover revenue-recognition issues and quarter-end cash reporting. Shares fell 26% in a day and have lost half their value in the two months since the options mess was exposed.

Vitesse also got a default notice from its lender. Silicon Valley Bank takes issue with "an apparent failure to meet the liquidity covenants under the credit facility, certain alleged misrepresentations under the credit facility and a material adverse change in the company," Vitesse notes. "The notice also states that the amount outstanding under the credit facility currently exceeds the permitted borrowing base under the facility."

Small problem. If Vitesse fails to get a reprieve, or falls short in an effort to raise cash through an investment bank, "it would have a material adverse effect on the company's operations, liquidity and financial condition," Vitesse warns.

Sounds bad, but luckily the flacks know just what to say. This kind of situation is, in their lingo, just a challenge.

"This has been a very challenging time for the company," Chairman John Lewis explains in a press release. "The new management team has done an excellent job in a very short period of time to address the pending challenges to Vitesse."

"In spite of the recent challenges we face with respect to our financial reporting and other issues," adds new CEO Chris Gardner, "Vitesse remains focused on executing our strategic business plan to capitalize on the investments we've made."

Sounds like a good thing to focus on.

Dumb-o-Meter score: 80. The real challenge is figuring out what else Vitesse might focus on.

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