When the Ontario Securities Commission slapped four company officials from Canada’s high-tech superstar, Research in Motion Ltd., with a $77-million fine in penalties and restitution, it was one of the few cases, if not the only case, where provincial securities regulators levied a sanction against executives for backdating stock options.
In the United States, 55 individuals and 17 companies currently face SEC scrutiny over options backdating. The penalties and settlements vary greatly. In the first stock-option backdating case to reach trial, Brocade Communications CEO Gregory Reyes was sentenced to 21 months in jail, two years’ probation and fined US$15-million for 10 counts of securities fraud in 2007.
In Canada, backdating stock options is a rarity. There’s a reason for that – and it has nothing to do with securities laws. Rather, the practice of backdating stock option is a non-event in Canada due to the Income Tax Act.