$100 million is a lot of money. Even to Jim Balsillie and Mike Lazaridis, the billionaire wonder duo who created the BlackBerry wireless device. Yet that’s the pound of flesh Ontario’s security regulator reportedly hopes to extract for Research in Motion’s involvement in a stock option backdating scandal. If the penalty seems arbitrary, though, that’s because it is.
A recap: in 2006 a special committee of RIM’s directors found the company improperly dated more than 3,000 options starting in the mid-1990s. Following the investigation, the company restated its earnings to include a $250-million after-tax expense, and the two executives repaid improper gains amounting to $1.6 million, plus legal costs.
There was definitely wrongdoing, but the massive $100-million fine the Ontario Securities Commission is seeking seems high. “This would be more significant than any fine the commission has previously imposed,” says Philip Anisman, a securities lawyer.
The biggest fine the OSC has ever handed out until now was to former Laidlaw CEO Michael DeGroote and his associates, who paid $23 million following allegations of insider trading. Other large fines include a $5-million levy on Biovail Corp., after the company admitted it misled investors about its financial statements. And last June, Betty Leung, a former legal secretary, was fined $103,137 over insider trading allegations, an amount equal to twice the profits earned on her trades.
The amounts vary so much because no hard and fast rules exist to spell out how large a negotiated fine should be, says Anisman. When a hearing determines that securities laws have been violated, the commission can impose a penalty of up to $1 million for each violation. But when it comes to a settlement, the final amount is hammered out in negotiations. “As a matter of principle, any administrative fine should be proportionate to the conduct involved,” he says. “But at this point we don’t know on what basis fines of this level are being sought.”