SEC settles with RIM execs on backdating stock options

The Securities and Exchange Commission today settled charges alleging that Research in Motion Ltd. Co-CEO James Balsillie and other senior executives backdated millions of stock options from 1998 through 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 U.S. investors by foreign issuers.”
The SEC’s complaint alleges that Ontario, Canada-based RIM Co-CEOs Balsillie and Mike Lazaridis, former chief financial officer Dennis Kavelman and former VP of finance Angelo Loberto illegally granted undisclosed, in-the-money options to RIM executives and employees by backdating stock options over the eight-year period.
“Companies and executives who attempt to conceal their fraudulent conduct from investors and regulators will be held accountable” said Antonia Chion, associate director of the SEC’s Division of Enforcement
The SEC’s complaint alleges 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, according to the SEC press release, the complaint “alleges that Kavelman, Loberto, Balsillie and Lazaridis backdated option agreements and offer letters, which concealed the fact that the options were granted in-the-money. The complaint also alleges that Kavelman and Loberto took steps to hide the backdating from regulators, RIM’s independent auditor and outside lawyer. For instance, 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 e-mail) using option pricing other than that allowable by the Ontario Securities Commission and the SEC in the U.S.’ The SEC’s 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.”
The individual defendants, who have not admitted any wrongdoing as part of the settlement, 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 SEC said the RIM executives also agreed to repay the in-the-money value of backdated options they had exercised ($132,915 for Kavelman, $47,951 for Loberto, $334,250 for Balsillie and $328,300 for Lazaridis) plus interest.
The settlement with the SEC is subject to approval of the U.S. District Court for the District of Columbia.