- In a recessed economy where millions are out of work and executive compensation is under harsh scrutiny, the last thing you want to get yourself into is an options scandal. Well, the SEC dropped the ball on Ontario, Canada-based Research In Motion (RIMM) today, whose executives have been illegally backdating stock options since 1998. They will face immediate punishment. Here is what the filing says:
Chief Financial Officer Dennis Kavelman, former Vice President of Finance Angelo Loberto, and Co-Chief Executive Officers James Balsillie and Mike Lazaridis illegally granted undisclosed, in-the-money options to RIM executives and employees by backdating millions of stock options over an eight-year period 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. Companies and executives who attempt to conceal their fraudulent conduct from investors and regulators will be held accountable (Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement).
- In summary, the SEC 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. The complaint also alleges that Kavelman and Loberto knowingly hid the backdating from regulators, RIM’s independent auditor and outside lawyer. Kavelman and Lobertowould pick low strike prices within reporting periods and in some instances avoided the lowest price so regulators would not detect the backdating. The allegations also detail that all four executives were aware of backdating issues and lied to shareholders at RIM’s July 2006 annual shareholder meeting
- Here is a breakdown of what each executive will have to pay in penalty. $500,000 for Kavelman; $425,000 for Loberto; $350,000 for Balsillie; and $150,000 for Lazaridis. The individual defendants also agreed to disgorge the in-the-money 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. Their disgorgement will be deemed satisfied by their previous payment of these amounts to RIM.