OSC and SEC: Different views on option backdating - 11 Feb 2009

You
got to love the difference between the way Canada and the United States
enforce their securities laws when it comes to stock-option backdating.

In
the United States, corporate executives can face parallel civil and
criminal proceedings and go to jail when nailed on stock-option
backdating offences and be fined. Not so under Canadian securities
legislation. Here, we send offenders to school, let them keep their job
and hit them with "administrative" penalties.

Last week Jim
Balsillie and MikeLazaridis, co-CEOs of Research In Motion, agreed,
along with COO Dennis Kavelman, to pay $77-million in penalties, costs
and compensation to end the Canadian investigation into their
stock-option backdating habits, which had gone on for 10 years.

Under
the deal, Mr. Balsillie, who was represented by James Douglas from
Borden Ladner Gervais, will pay the OSC $5.7-million in costs and
penalties and not sit on the corporate board of a public issuer for at
least one year.

Mr. Kavelman, represented by David Hausman at
Fasken Martineau DuMoulin, must pay $1.65-million and is prohibited
from becoming or acting as a director or officer of any reporting
issuers for at least five years and must complete a course regarding
the duties of directors and officers before he can join a board.

Mr.
Lazaridis, represented by Steve Tenai of Ogilvy Renault, must pay
$1.65-million and take a course on the duties of officers and
directors. He remains as co-CEO and president, and is still a director.

The
men were all reprimanded by the commission and must also pay RIM back
$83.1-million for benefits employees received, less a $15-million
credit for money that Mr. Lazaridis and Mr. Balsillie already paid.

However,
they can pay that amount by simply forgoing properly priced options,
because the company, represented by Rob Staley at Bennett Jones, said
that was the best way to make RIM whole without triggering tax issues.

According
to SEDI, Mr. Lazaridis had 2.45 million options as of Feb. 13, last
year. Mr. Kavelman had 680,00 options as of Sept. 29, and Mr. Balsillie
had 2.45 million as of March 26.

So the real penalty -- the money coming out of their pockets -- is closer to $9-million, a far cry from$92-million.

Granted,
$9-million is a lot more than most Canadians will ever have, and the
numbers are big by OSC historical standards. However, according to
Forbes, Mr. Lazaridis is worth US3.6-billion and Mr. Balsilie
US$3.4-billion, so the penalties are a rounding error by their
financial standards.

Consider that the conduct went on for a
decade and involved 1,400 grants out of 3,200. It also involved -- for
part of that time-- the coCEOs certifying their financial statements to
be true, even though they weren't. After the tech meltdown, regulators
on both sides of the border pumped that measure as a key deterrence
tool. Apparently it didn't work in this case.

The OSC settlement
is tough in its wording, noting there was "misleading disclosure" that
contained "untrue" statements that the options were priced at fair
market value. There's more than three pages listing the publicly filed
documents featuring the "misleading and untrue statements." They range
from prospectuses to information circulars, annual reports and
financial statements. The OSC settlement essentially finds the men were
negligent because they "should have taken reasonable steps to ensure"
the dates chosen did not conflict with the plan and securities laws. It
will be interesting to see if the RCMP takes any further interest in
the case.

more...http://www.financialpost.com/scripts/story.html?id=1275417