The US Securities and Exchange Commission has charged and settled with BlackBerry maker Research in Motion Limited (RIM) and four of its senior executives over stock option backdating.
The SEC's complaint alleges that Ontario, Canada-based RIM, its former chief financial officer Dennis Kavelman, former vice-president of finance Angelo Loberto, and co-chief executive officers James Balsillie and Mike Lazaridis illegally granted millions of undisclosed back-dated share options to RIM executives and employees over an eight-year period from 1998 to 2006.
"As alleged in our complaint, RIM and its highest level executives engaged in widespread backdating of options which provided them and other employees with millions of dollars in undisclosed compensation," said Linda Chatman Thomsen, director of the SEC's division of enforcement. "This enforcement action underscores the SEC's resolve to assure full and accurate disclosure to US investors by foreign issuers."
Antonia Chion, associate director of the SEC's division of enforcement, said, "Companies and executives who attempt to conceal their fraudulent conduct from investors and regulators will be held accountable."
The SEC's complaint alleges that the defendants made false and misleading disclosures about how RIM priced and accounted for options. In addition, according to the complaint, the backdating violated the terms of RIM's stock option plan and a listing requirement of the Toronto Stock Exchange. RIM's stock is listed on both the NASDAQ Stock Market and the Toronto Stock Exchange.
Specifically, the SEC's complaint alleges that Kavelman, Loberto, Balsillie and Lazaridis backdated option agreements and offer letters to make sure recipients got options at a better price.
The complaint also alleges that Kavelman and Loberto took steps to hide the backdating from regulators, RIM's independent auditor and outside lawyer.
Kavelman and Loberto usually picked low strike prices within reporting periods and in some instances avoided the lowest price so regulators would not detect the backdating.
On one occasion, Kavelman asked a manager not to document improper pricing in e-mails. Kavelman wrote, "FYI, it is a major breach of protocol to be discussing (and documenting via email) using option pricing other than that allowable by the Ontario Securities Commission and the SEC in the US."
The complaint further alleges that after all four executives were aware of backdating issues that had come to light at other companies, they attended RIM's July 2006 annual shareholder meeting, where Kavelman misled investors by denying that RIM was backdating options.
All defendants have agreed to settle this matter, without admitting or denying the allegations in SEC's complaint.
Kavelman and Loberto agreed to be barred for five years from serving as officers or directors of any issuer that has securities registered with the SEC or that is required to file reports with the SEC.
The individual defendants will pay penalties in the following amounts: $500,000 for Kavelman $425,000 for Loberto $350,000 for Balsillie and $150,000 for Lazaridis.
The individual defendants also agreed to pay back the value of backdated options they had exercised ($132,914.60 for Kavelman, $47,950.56 for Loberto, $334,250 for Balsillie and $328,300 for Lazaridis) plus interest.
Earlier this month, the Ontario Securities Commission brought a related action against RIM, Balsillie, Lazaridis, Kavelman, Loberto and other directors. A total of $76.85m in Canadian dollars was paid out, along with other sanctions, to settle the matter.