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The Ontario Securities Commission has slapped $77 million in penalties and restitution against four company officials from Research in Motion Ltd., Canada's high-tech superstar.The amount ordered in the case, in which the commission says RIM employees raked in $66 million over 10 years from improperly backdated stock options, is the largest ever levied by the province's stock market watchdog.
The settlement deal is among the biggest ever for the commission.
The timing of stock option grants has been a controversial issue in recent years.
Toronto Stock exchange rules prohibit the award of ‘in-the-money’ options. academics and regulators have found evidence that managers systematically gained by granting themselves and their employees ‘in-the-money’ options which were erroneously reported as ‘at-the-money’ options.
Backdating of stock options is an example of an agency problem.
It has emerged despite all the measures (i.e., new regulations and additional corporate governance mechanisms) aimed at addressing such problems?
What values and norms should guide the board of directors in protecting the shareholders’ interests?
To examine these issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as .
This practice, known as backdating, enriches managers at the expense of other shareholders.
In 2008, the OSC charged Mike Lazaridis and Jim Balsillie (of RIM inc.) with option backdating.
In addition, Balsillie, Lazaridis, Kavelman and Angelo Loberto, the company's former director of finance, will pay million in penalties and investigation costs to the commission.
The settlement deal will allow Balsillie, Lazaridis and Kavelman to contribute their payments to RIM simply by not exercising stock options that they still hold.
It may also be a sign that the commission, often criticized for being soft when it comes to enforcing stock market regulations, is getting tough."RIM is a high-profile company and with a settlement this high, it will send a very strong signal that the OSC is serious about trying to pursue its enforcement mandate," said Christopher Nicholls, law professor at the University of Western Ontario. It's highly unlikely that RIM is the only company that has engaged in these practices."The pact involves eight current and former executives from the company, the maker of the Black Berry phone.