BlackBerry bosses face $100 mn fine for stock option backdating

January 22nd, 2009 - 10:26 pm ICT by IANS  

Toronto, Jan 22 (IANS) Research In Motion (RIM) is facing more trouble after a court here Monday ordered the BlackBerry maker to drop its bid for takeover of an Indian-owned company.The company’s bosses face individual penalties to the tune of $100 million from the provincial Ontario Securities Commission for their role in a stock option backdating controversy.

The commission has been investigating the company’s two co-CEOs, Jim Balsillie and Michael Lazaridis, for their role in this controversy dating back to 1996, a report here said Thursday.

According to the report, the two sides are about to strike a deal under which Balsillie may face the bulk of penalty and quit as director of the RIM board.

If the BlackBerry co-CEO is slapped with the $100 million penalty, it would be the largest individual fine imposed by the Canadian regulatory board, said the Globe and Mail newspaper.

Stock options backdating sets the grant date of shares retrospectively when the stock price was low, thus giving instant paper gains for employees.

The RIM board set up a special committee to investigate the issue in 2007 and reportedly found that the company had backdated more than 40 percent of stock options granted to employees since 1996.

The investigation also found that 12 of the 16 option grants made to the two co-CEOs between 1996 and 2006, to acquire a total of two million shares, were priced using an incorrect date.

This stock option backdating reportedly benefited the two co-CEOs to the tune of US $1.6-million each.

However, RIM said it recovered this amount from them, along with full legal costs to the company.

The BlackBerry maker also informed the regulatory bodies in Canada and the US - the Ontario Securities Commission (OSC) and the US Securities and Exchange Commission - about its probe and evidence of backdating.

The RIM investigation said that all option grants, except those to the two co-CEOs, were made by co-CEO Balsillie “including grants that have been found to have been accounted for incorrectly”.

On the completion of the investigation, RIM re-stated its financial statements back to 1999, recording a US$248-million after-tax expense related to improper accounting over a variety of option granting issues.

However, the investigation “did not find intentional misconduct on the part of any director, officer or employee responsible for the administration of the company’s stock option grant programme”.

But RIM said all its employees and executives agreed to repay benefits they received from options that were incorrectly priced. The two co-CEOs paid additional $5 million each to meet investigation costs, said the report.

Later, the two co-CEOs also agreed to pay another $2.5 million each to RIM for its investigation costs incurred for reaching a settlement on a lawsuit filed by Canadian shareholders over the option backdating issue.

After these troubles, RIM announced in 2007 that Balsillie would step down as its chairman, but remain co-CEO and a director on the board.

Launched in 1999 by Balsillie and Lazaridis, BlackBerry has become Canada’s biggest global brand and undisputed world leader in wireless communications technology.

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