U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20902 / February 17, 2009
Accounting and Auditing Release No. 2937 / February 17, 2009
Securities and Exchange Commission v. Research in Motion Limited, Dennis Kavelman, Arcangelo Loberto, James Balsillie and Mihal Lazaridis, 1:09-cv-00301 (RBW) (D.D.C.)
SEC CHARGES RESEARCH IN MOTION AND FOUR OF ITS SENIOR EXECUTIVES WITH STOCK OPTION BACKDATING
The Securities and Exchange Commission today charged Ontario, Canada, BlackBerry maker Research in Motion Limited (RIM) and four of its senior executives with stock option backdating.
The SEC's complaint alleges that RIM, its former 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. The complaint alleges that the defendants made false and misleading disclosures about how RIM priced and accounted for options, and that the illicit backdating provided the executives and other employees with millions of dollars in undisclosed compensation. 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. RIM's stock is listed on both the NASDAQ Stock Market and the Toronto Stock Exchange.
As alleged in the complaint, Kavelman, Loberto, Balsillie and Lazaridis backdated option agreements and offer letters, which concealed the fact that the options were granted in-the-money. The complaint also alleges that Kavelman and Loberto took steps to hide the backdating from regulators, RIM's independent auditor and outside lawyer. The complaint further alleges that after all four executives were aware of backdating issues that had come to light at other companies, they attended RIM's July 2006 annual shareholder meeting where Kavelman misled investors by denying that RIM was backdating options.
The SEC's complaint, filed in federal court in the District of Columbia, contains the following additional allegations:
All defendants have agreed to settle this matter, without admitting or denying the allegations in the SEC's complaint, on the following terms:
RIM consented to the entry of an order permanently enjoining it from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and the reporting, books and records and internal controls provisions of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-16. The settlement with RIM takes into account RIM's cooperation during the SEC's investigation.
Kavelman and Loberto consented to an order permanently enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, the misrepresentations to auditors provision of Exchange Act Rule 13b2-2; and from aiding and abetting RIM's violations of the reporting, books and records and internal controls provisions. Kavelman also consented to an order permanently enjoining him from violating the certification provision of Exchange Act Rule 13a-14. Kavelman and Loberto agreed to be barred for a period of five years from serving as officers or directors of any issuer that has a class of securities registered with the SEC or that is required to file reports with the SEC. In addition, Kavelman and Loberto agreed to resolve an anticipated administrative proceeding by consenting to an SEC order prohibiting them from appearing or practicing before the SEC as accountants for five years.
Balsillie and Lazaridis consented to the entry of an order permanently enjoining them from violating the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act, and the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1; and from aiding and abetting RIM's violations of the reporting, books and records and internal controls provisions.
The individual defendants will pay civil penalties in the following amounts: $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.
The settlements in the civil injunctive action are subject to the approval of the U.S. District Court for the District of Columbia.
On February 5, 2009, the Ontario Securities Commission brought a related settled action against RIM, Balsillie, Lazaridis, Kavelman, Loberto and certain other directors which included the total payment in Canadian dollars of $76.85 million and other sanctions. The SEC acknowledges the assistance of the Ontario Securities Commission in this matter.