An SEC investigation into options backdating at Ontario, Canada-based Research In Motion (RIM) has concluded with the company and four of its executives entering into two separate settlements with American and Canadian regulators.
The company and co-CEOs Jim Balsillie and Mike Lazaridis, former finance vice president Angelo Loberto and former CFO Dennis Kavelman are alleged to have granted millions of undisclosed, backdated options to RIM executives and employees over an eight-year period from 1998 to 2006, according to the SEC.
Though backdating stock options is not necessarily illegal, the SEC alleges that RIM made “false and misleading disclosures” regarding how the company priced and accounted for stock options. The SEC claims that the four executives backdated option agreements and offer letters, concealing that the options were granted in-the-money – which for call options places the stock’s price below the market price and for put options places the stock’s price above the market price.
In doing so, the company violated the terms of its own stock option plan and a listing requirement of the Toronto Stock Exchange. RIM is listed on the American NASDAQ stock market and the Canadian TSE.
Under the terms of the settlement with the SEC, the four executives do not have to admit or deny the allegations but will still pay an aggregate $1.425 million and relinquish the value of their exercised, backdated options. Kavelman and Loberto are also prohibited for five years from serving as officers or directors of any company which is required to file reports with the SEC.
The SEC settlement comes on top of an earlier settlement with the Ontario Securities Commission (OSC). Under the terms of the OSC settlement, Balsillie, Lazaridis, Loberto and Kavelman will pay RIM $30.39 million for backdating and $35.55 million for the costs of the internal investigation into the matter. The executives are also paying the OSC $7.22 million in administrative penalties and costs related to the investigation. The executives have already paid RIM $11.9 million to defray the costs of the internal investigation.
As with the SEC settlement, Kavelman is barred from working as a director or officer of any public Canadian company for five years in the terms of the OSC settlement. Also, Loberto must complete an OSC-approved course on the duties of directors and officers of public companies before he can again act in that capacity.