statism watch

Naturally, this means Mike Lazaridis will step down from Jim Flaherty’s unelected panel of economic mandarins. Right?

Note also that if you read this article carefully, those culpable are paying NOTHING out of pocket.

Flashback: RIM execs, securities watchdog reach settlement

Madhavi Acharya-Tom Yew, Toronto Star
February 6, 2009

Stock-option violations spark record settlement; billionaire Balsillie says `mistakes were made’

The Ontario Securities Commission has slapped $77 million in penalties and restitution against four company officials from Research in Motion Ltd., Canada’s high-tech superstar.

The amount ordered in the case, in which the commission says RIM employees raked in $66 million over 10 years from improperly backdated stock options, is the largest ever levied by the province’s stock market watchdog.

It may also be a sign that the commission, often criticized for being soft when it comes to enforcing stock market regulations, is getting tough.

“RIM is a high-profile company and with a settlement this high, it will send a very strong signal that the OSC is serious about trying to pursue its enforcement mandate,” said Christopher Nicholls, law professor at the University of Western Ontario. “Now we’ll wait and see. It’s highly unlikely that RIM is the only company that has engaged in these practices.”

The pact involves eight current and former executives from the company, the maker of the BlackBerry phone. Jim Balsillie, co-chief executive and director of Waterloo-based RIM, said he was relieved a settlement had been reached.

“We’re just very pleased to put this behind us for our employees and our shareholders,” he said following the three-hour OSC hearing.

“Mistakes were made and we absolutely have done a number of things to change our organization to reflect better governance practices. We really want to focus 100 per cent on moving the business forward.”

He declined to comment on the specifics of the deal, but Balsillie and co-chief executive Mike Lazaridis, as well as former chief financial officer Dennis Kavelman, are responsible for the bulk of the payments.

They will “contribute” $38.3 million to RIM to account for the improper profits from the backdated stock options, according to the OSC order.

They will also “contribute” another $29.8 million to cover the costs of RIM’s internal investigation, on top of $15 million already paid by Balsillie and Lazaridis.In addition, Balsillie, Lazaridis, Kavelman and Angelo Loberto, the company’s former director of finance, will pay $9 million in penalties and investigation costs to the commission.

The settlement deal will allow Balsillie, Lazaridis and Kavelman to contribute their payments to RIM simply by not exercising stock options that they still hold.

The company will also bring in an expert to ensure that it has properly beefed up its financial controls and governance practices, and Balsillie will step down from the board of directors for one year.

For the OSC, the case represents a much-needed victory involving a high-profile company and its billionaire founders on a controversial issue.

“The sanctions send the right message that the conduct we saw here will not be tolerated by anyone,” OSC litigator Sasha Angus said. “We’re not going for records – we simply thought that this was the right one under the circumstances.”

The commission is not done with the issue of stock-option backdating, he added.

“We’re looking at other cases. What happens to them depends on the investigation.”

Stock options give company employees the right to buy shares at a set price on a particular date, typically the price at the end of the trading session on the day the grant is given.

Backdating refers to improperly setting the grant date to coincide with a stock’s lowest price, creating an instant – and sometimes spectacular – paper gain that can be realized as soon as the shares are sold.

From 1996 to 2006, the OSC alleges, RIM granted 3,200 stock options, and 1,400 of them were improperly backdated, allowing its employees to ring up millions in improper gains.

Half of those profits were paid back following an internal investigation by the company’s board that began in August 2006.

During the 10 years, RIM’s financial statements declared that the options were priced at fair market value.

OSC commissioner James Turner, speaking for the panel yesterday, said it was “shocking” that backdating went on for so long. However, he stressed that none of the respondents were accused of fraud, but rather “negligence.”

Under the $77 million deal, Balsillie will have to pay a $5 million penalty and $700,000 in investigation costs to the OSC. Lazaridis will pay $1.5 million in penalties and $150,000 in costs, and Kavelman will pitch in $1.5 million and $150,000 respectively.

Loberto, now RIM’s vice-president of corporate operations, will have to pay $50,000 in investigation costs.

RIM directors Kendall Cork, Douglas Wright, and James Estill were reprimanded and must take a course on the duties of directors and officers.

Douglas Fregin, also a co-founder of RIM and former director, must complete a course on the duties of directors and officers. He was the only one who was not reprimanded.

Balsillie ranked 327th on a list of the world’s billionaires published by Forbes magazine last year, with a net worth of $3.4 billion (U.S.). Lazaridis was 296th with a fortune estimated at $3.6 billion (U.S.). They are both 47 years old.

The ranking notes that the pair’s fortunes more than doubled in 2008 “thanks to the strength of RIM’s stock and a 3-for-1 stock split.” RIM shares trade in Canada and the U.S.

Forbes’ figures were calculated according to stock prices and exchange rates on Feb. 11, 2008.

That month, share prices on both sides of the border hovered around $100.

They peaked at about $140 later in the spring and have since slid to about $55 (U.S.) per share and, in Canada, about $67 per share in recent months.

On the TSX yesterday, the shares gained 84 cents to close at $69.94.

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This entry was posted on Friday, February 6th, 2009 at 2:03 pm and is filed under accountability, elites, law. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.