This week, Research In Motion (RIM) executives ended an intensive, multiple-year investigation into the company’s past stock-backdating practices by settling with Canada’s Ontario Securities Commission (OSC) for US$62.5 million (C$77 million). The fines will be paid back to the company by RIM executives, one of whom will also be required to temporarily cede his post on its board of directors—though he’ll stay on as co-CEO. While $62 million certainly is not chump change, and RIM’s board probably isn’t pleased with losing one of its own, the backdating scandal shouldn’t have much of a lasting effect on the BlackBerry-maker, its products or its customer base. Here's why.
First, a definition of stock backdating: “Backdating” in general means to assign an earlier date to something. For corporate stock options, backdating means to an assign an earlier, more favorable date and valuation of stock than is accurate when options are granted, so investors can potentially claim a larger benefit in the future. Backdating isn’t always illegal either; it’s when companies neglect to properly report their actions that trouble comes into play, as is the case with RIM.
RIM’s backdating indiscretions reportedly took place over the course a decade, from 1996 through 2006, until regulatory bodies like the OSC and the U.S. Securities Exchange Commission (SEC) began cracking down on companies and enforcing more strict regulation. In fact, in July 2006, the U.S. district attorney for northern California, whose jurisdiction covers the Silicon Valley area, launched a stock-option-grants-specific task force because the problem was getting so out of hand. (The practice was so common in the heady days of the late ‘90's and early 2000s, even heavies such as Apple, Dell, Broadcom and McAfee were all backdating stock options to some extent—and all have been prosecuted for it.)
Now a breakdown of the fines levied against RIM’s executives: The total sum that Co-CEOs Mike Lazaridis and Jim Balsillie, along with RIM COO Dennis Kavelman, must pay back to RIM is roughly US$55 million (C$68 million), which the Canadian regulatory body says will cover any remaining backdating-related losses, as well as the costs of the company’s investigation. The backdating itself generated an improper gain of roughly US$53 million (C$66 million), according to reports, though half of that amount has already been repaid to the company by RIM employees.
The three RIM executives will also have to pay some US$7.25 million (C$9 million) in fines to the OSC. And in addition to the monetary penalties, Balsillie will be forced to step down from his position on the company’s board of directors for at least a year.
Okay, that’s a lot of numbers, but what does this all really mean? For one thing, RIM can now put an end this sorry chapter of its history. Balsillie’s comments after the OSC hearing on Thursday suggest this can’t happen too soon.
“[W]e are very pleased to put this behind us,” Balsillie told Canada’s Globe and Mail. “We take full responsibility, and accept that we've made mistakes. … We don't duck it one bit.”
The U.S. SEC is also investigating RIM for backdating, but the company says it has already made a separate offer to settle those charges, and it looks as though the terms will be accepted.
Both OSC settlement, and the whole Barack Obama BlackBerry drama, ought to keep RIM in the news for a bit. And that’s actually a good thing, at least if you believe that all
