Reports that top executives of Research in Motion Ltd. are being fined a record-breaking $100 million by the Ontario Securities Commission for alleged stock options irregularities is unlikely to tarnish RIM’s wireless market halo, according to a telecom industry analyst.
The OSC was investigating accounting issues linked to stock options given by RIM back in 1996, according to reports appearing in the Globe and Mail newspaper. The commission was said to be asking for fines totalling $100 million against RIM co-chief executive officers Jim Balsillie and Mike Lazaridis fines, according to the report.
Laurie Gillett, manager of public affairs for the OSC, did not confirm nor deny the reports but said “the commission cannot comment on this matter any further.”
RIM did not answer IT World Canada’s e-mail and phone requests for a statement.
Lazaridis and Balsillie are credited for revolutionizing wireless communications with the introduction of the BlackBerry smart phone device in 1999, which catapulted RIM to the status of being one of Canada’s biggest global successes.
One Toronto analyst said OSC’s actions indicate that the commission is “flexing its muscles” to send a message to the local business community. The amount is probably the highest penalty ever brought down by the OSC, according to Carmi Levy, senior vice-president for strategic consulting at AR Communications Inc. in Toronto.
The $23-million Michael DeGroote, chief executive of Laidlaw Inc., agreed to pay the OSC in 1993 for alleged insider trading is said to be the largest individual payment made to the commission.
“Regardless of whether the penalty fits the crime, the OSC is sending a message that what RIM has done is not acceptable,” Levy said.
Levy, however, said the developments will unlikely have any effect on RIM’s market position.
“The issue stems from a matter that has happened long ago and which stockholders have had ample time to digest and understand. They’ll continue to back RIM, which has been doing very well despite the economic situation,” he said.
A 2007 investigation by a special committee of RIM’s board found that the company had backdated more than 40 per cent of stock options granted to employees since 1996.
Stock options provide employees a right to buy shares at a set price – normally at the end of the trading session on the date a grant is made. Backdating occurs when the company sets the grant date retroactively to coincide with a stock’s low point which gives the purchaser an instant gain.
The committee also reported that 12 of the 16 option grants made to Balsillie and Lazaridis between 1996 and 2006 for two million shares were priced using an incorrect date. The committee estimated that benefit to the two executives amounted to about US$1.6 million. The gains have already been repaid, along with full legal costs, to the company.
Balsillie later stepped down from his CEO post. RIM also notified the U.S. Securities and Exchange Commission and the OSC before releasing the report that it had uncovered evidence of backdating.
The Ottawa-based Canadian Association of Income Trust Investors (CAITI) views stock option backdating as “instant money stolen from shareholders.”
“Taxpayers are being ripped off as well, since employee stock options are taxed at half the rate of income from employment they truly represent,” a statement on the CAITI Website said.