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BlackBerry-maker settlement approved

TORONTO - The co-executives of BlackBerry-maker Research in Motion will pay the brunt of about $77 million Canadian (US$62 million) in fines and restitution to settle allegations they participated in a practice known as stock option backdating.

The settlement Thursday is one of the biggest in the history of the Ontario Securities Commission, and marked a rare occasion where some of the country’s most prominent executives appeared before the commission for wrongdoing.

Under the settlement, Jim Balsillie and Mike Lazaridis, co-CEOs of RIM, as well as former chief financial officer Dennis Kavelman will contribute the bulk of the fines.

Also included are several other executives and directors from one of the most successful companies in the history of Canada.

The allegations surround stock option backdating, a practice that was once commonplace in the technology sector. The provincial stocks regulator said the executives were negligent in overseeing the option backdating, but did not commit fraud.

“The sanctions send the right message that the conduct we saw here won’t be tolerated by anyone,” OSC litigator Sasha Angus said after the record-high settlement was announced.

Lazaridis, who founded the company, will pay a $1.5 million Canadian (US$1.2 million) penalty to the commission.

Balsillie, who has already stepped down as chairman, will pay $5 million Canadian (US$4 million) to the commission and $700,000 Canadian (US$570,000) toward the Ontario Securities Commission investigation.

Balsillie will also be prevented from being a director of any company for a year — although he will be allowed to remain an executive of RIM.

The two men and Kavelman must also repay a total of $38.3 million Canadian (US$31.1 million) plus $5.3 million Canadian (US$4.3 million) in interest to RIM. And they must pay $44.8 million Canadian (US$36.5 million) to cover the company’s investigative costs, of which they have already contributed $15 million Canadian (US$12.3 million)

The OSC declined to reveal how the two payments will be divvied up between the executives, saying that they had asked the commission to fine them as a group.

Kavelman, who was RIM’s chief financial officer from 1995 to 2007 and has been chief operating officer since then, is prohibited from acting as a director or officer of any Canadian reporting issuer for five years.

The settlement dealt with a practice known as stock option backdating, which occurred at the Ontario-based technology company — and many others — from 1996 until 2006.

One of the OSC panelists said the commissioners were shocked that the backdating occurred for a decade, and the settlement calls for a comprehensive review of RIM’s policies and procedures.

Lazaridis and Balsillie said after Thursday’s hearing that the settlement enables them and the company to put the issue into the past and move on.

RIM’s lead director, John Richardson, said the company is pleased the parties have resolved the matter. The company’s statement said the staff of the U.S. Securities and Exchange Commission has reached settlements with RIM and its senior executives, which remain subject to final approval.

The OSC said RIM employees improperly gained $66 million Canadian (US$54 million) through backdated options, and have given back only about half of that amount through repayments and canceled options.

The commission also said executives and directors allowed financial reports to be issued that contained “the misleading or untrue statement that options were priced at the fair market value of RIM’s common shares at the date of the grant.”

Stock options — especially popular in Silicon Valley during the high-tech boom — give employees the right to buy shares of stock at a predetermined time. The options are a coveted incentive to lure and keep talent, particularly when granted by newly public companies with the opportunity for rapid growth.

Backdating options make the rewards even more lucrative by retroactively setting the exercise price to a low point in the stock’s value. Usually, a stock option’s exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher.

If companies backdate options without properly disclosing and accounting for the move, it can cause profits to be overstated and taxes to be underpaid.

The Canadian maker of the popular handheld device disclosed in April 2007 that it was under a formal investigation by the U.S. Securities and Exchange Commission in connection with its past options granting practices. The SEC has investigated more than 100 companies, including Apple Inc., over the issue in recent years and has reached settlements with a number of companies and executives since 2006.