Hedge Fund Touts Probe of Vitesse Directors

SAN FRANCISCO -- Shareholder activism has merged with America's Most Wanted-style drama in the latest twist to the strange saga of Vitesse Semiconductor(VTSS Quote).

On Tuesday, one of the chipmaker's largest institutional shareholders went gumshoe, initiating a "formal investigation" and launching a telephone hotline designed to collect tips discrediting two newly appointed board members.

"Chapman Capital encourages any party who has endured professional interaction with or exposure to either Ms. Willow Shire or Mr. Steve Hanson to contact Chapman Capital, anonymously or for attribution at the caller's full discretion," read the notice, which provided both a telephone number and email address.

The activist hedge fund claims to have already dug up "disconcerting" information about the two directors' backgrounds and affiliations in its own preliminary due diligence, which it said it would make available to certain Vitesse shareholders upon request.

Chapman Capital, a Los Angeles-based parent of two hedge funds which together own 8.3% of Vitesse common stock, has been a thorn in Vitesse management's side for some time, agitating to sack a previous Vitesse board member earlier this year.

Although Chapman Capital got its wish on that score, it now claims that two new directors are merely "re-treaded substitutes who have been admitted to Vitesse's boardroom without the legitimacy of being vetted, much less elected."

The cause of the legitimacy dispute stems from the fact that Vitesse has not had a shareholder meeting, the usual venue for electing board members. Vitesse says Securities and Exchange Commission regulations preclude it from holding the meeting because of its failure to file audited quarterly earnings reports for the past two years (a lapse related to Vitesse's investigation into past stock-option backdating).