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. 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 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: From through , RIM, Kavelman, Loberto, Balsillie and Lazaridis backdated approximately 1, stock option grants for a total of nearly seven million shares, including new hire, group, promotional and periodic grants.
Balsillie initially ran RIM's stock option program and directed others to backdate his own and other employees' options. Kavelman assumed increasing responsibility for the option program and approved backdating many grants.
Loberto helped carry out the backdating and selected prior dates with low prices for a number of grants. Lazaridis requested that options for certain new hires and employees be backdated. At times, when RIM's stock price dropped after employees had received options, the four executives re-priced the same options at substantially lower backdated prices.
To one new hire, Kavelman expressed a concern about an "optics issue" with the regulators if the new hire's start date did not match the grant date for his options. Nevertheless, Kavelman and Balsillie agreed to backdate the options to the lowest price before the new hire's start date. Kavelman and Loberto usually picked low strike prices within reporting periods and in some instances avoided the lowest price so regulators would not detect the backdating.
In addition, Kavelman asked a manager not to document improper pricing in e-mails. Kavelman wrote, "FYI, it is a major breach of protocol to be discussing and documenting via email using option pricing other than that allowable by the Ontario Securities Commission and the SEC in the US.
The defendants' misconduct caused RIM, from fiscal year to the first quarter of fiscal year 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, 13a-1 and 13a 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 13b, the misrepresentations to auditors provision of Exchange Act Rule 13b; 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 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 13b; 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: 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.
District Court for the District of Columbia.