The train wreck that is Vitesse Semiconductor ( VTSS) continues to make for a blazing spectacle.

In the latest flare-up, one of the chipmaker's largest institutional shareholders is demanding that the company hold a shareholder meeting in order to oust at least one member of its board.

In a letter sent to Vitesse's board Friday, Chapman Capital accuses the current board and senior management team of negligence and potential complicity in the company's stock option backdating, and of failure to honor its fiduciary duties to shareholders.

In addition to scheduling a stockholder meeting, Chapman Capital's letter says that venture capitalist and Vitesse director Jim Cole, who Chapman claims has been held responsible for the company's "deep-seated problems," must resign immediately.

Cole was not immediately available for comment.

Chapman says it will file suit in Delaware court to force Vitesse to hold a shareholder meeting if the company doesn't immediately schedule one on its own.

Chapman Capital, the Los Angeles-based parent of two hedge funds, owns 11.8 million Vitesse common shares, or 5.3% of the company, making it the company's third-largest shareholder, according to Lionshares.

"Despite Chapman Capital's sizable ownership in the company, you would be well advised not to mistake it for a vote of confidence whatsoever in Vitesse's board that reports and is held accountable to the entire ownership base," the letter reads.

A spokesperson for Vitesse was not immediately available for comment on Chapman Capital's letter.

The news comes two days after Vitesse sued KPMG for more than $100 million, claiming that the firm failed to provide proper auditing and other services during the years in which Vitesse was found to have backdated stock options.

Vitesse's implosion began in 2006, when the company fell under suspicion for backdating practices.

An internal investigation by Vitesse revealed that its former management team backdated and manipulated the grant dates of stock options beginning in 1995, resulting in $120 million in restatements.

The investigation also uncovered various other financial shenanigans, including false sales invoices that increased revenue, failure to record inventory for merchandise returns and the improper accounting of certain transactions as sales of accounts receivables rather than borrowings.

Vitesse blamed the backdating on then-CEO Louis Tomasetta and two of his lieutenants, and relieved the three of their duties (although Tomasetta still sits on the board). A new management team, led by CEO Chris Gardner and Chief Restructuring Officer Shawn Hassel took over in 2006.

Meanwhile, Vitesse was also booted from the Nasdaq in June 2006 for failing to file its quarterly reports on time and now trades on the Pink Sheets. Vitesse hasn't filed audited financial statements in nearly two years, although the company recently hired BDO Seidman as its new accounting firm and said it was committed to filing audited financials and regaining its listing on a national exchange.

According to Chapman's letter, Vittesse was allowed to elect the current board in January 2006, due to the "heightened state of distress" in the wake of the backdating mess. But Chapman claims that Delaware law requires Vitesse to have held a meeting of stockholders by Feb. 24, 2007.

The failure of the corporate governance committee, headed by Cole, to schedule a stockholder meeting "reaffirms Chapman Capital's skepticism regarding the balance of the company's board," the letter states.

Vitesse finished Friday's regular session down a penny to $1.20.

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