HERES THE GLOBE AND MAIL ARTICLEBy SINCLAIR STEWART and ANDY HOFFMAN
From Saturday's Globe and Mail
E-mail this Article
Print this Article
Advertisement
Insiders at Research In Motion Ltd. sold more than $7.5-million worth of the company's shares earlier this month amid rampant speculation the maker of BlackBerry devices was about to be acquired by Hewlett-Packard Co.
Fifteen insiders at the Waterloo, Ont.-based wireless company, including president and co-chief executive officer Michael Lazaridis and chief financial officer Dennis Kavelman, either cashed in options or sold shares during a five-day trading period in which the company's stock climbed up as much as 30 per cent on rumours of a takeover that failed to materialize.
Mr. Kavelman noted that the company was in close contact with Canadian and U.S. regulators throughout the stock's run, and he said that the extensive trading by insiders was perfectly legitimate. At the same time, he conceded company executives were concerned about "the optics" of the trading and discussed the issue with their lawyers.
There may have been a perception, for instance, that some insiders knew the rumours were baseless when they were selling the stock.
RIM consistently refused to comment on the matter, preferring to let the stock cool off on its own rather than issue a statement refuting the rumours.
"You ask your counsel is this reasonable to do this [trading], and if the thing was being hyped to the moon on this rumour, then . . . from a pure sort of disclosure point of view would it have been okay? Yeah," Mr. Kavelman said. "But from an optics point of view, how does it look? And that was something we were obviously very concerned about."
Mr. Kavelman said he waited until Aug. 6, when the rumours were subsiding, before exercising 35,000 options at $3.40 a share for profit of $1.14-million, according to trading records published by securities regulators. He sold these shares at $35.94: below their peak close of $38.14 on Aug. 1, when the rumours really took hold, but still more than $5 above the closing price July 30, the day before the shares began to mount their climb.
RIM's stock jumped 11 per cent on July 31, closing at $33.79. The following morning, a Friday, trading desks were jumping on a rumour that technology giant Hewlett-Packard was about to buy the company and the stock shot up a further 13 per cent on very heavy Toronto trading.
Mark Carragher, a senior officer with the company, sold 12,000 shares that day, some of which were traded privately, at an average price of $37.50, for proceeds of $450,000. Other insiders made smaller trades.
In keeping with its policy, RIM declined to comment on the rumours, even when the stock continued its ascent on the Nasdaq Stock Market the following Monday, Aug. 4, where it gained nearly 4 per cent (Canadian markets were closed for a civic holiday). Bryan Douglas Taylor, a vice-president, exercised 10,000 options at $6 apiece, and then sold the shares in the U.S. market for between $28.25 (U.S) and $28.94, according to regulatory records. His profit on the trading was just over $345,000 (Canadian).
The bulk of the insiders, including Mr. Lazaridis, traded on Aug. 5, when the rumours appeared to lose steam and the stock showed signs of flagging. The co-CEO sold 85,000 shares that day at $25.41 (U.S.) apiece, or roughly $35.65 (Canadian), for proceeds of just over $3-million.
Although the stock was beginning to falter, the trading that day occurred just before a U.S. court issued an after-markets patent ruling concerning RIM. A Virginia court ordered RIM to pay $53.7-million (U.S.) to NTP Inc., a private patent company, and banned the sale of BlackBerry products from the United States. That injunction was stayed pending an appeal, which the company described as positive.
"I think the optics of the lawsuit concern me more, with the results coming out that evening," Mr. Kavelman said of the trading, which he described as coincidental. "It did take us completely by surprise."
Angelo Loberto, a vice-president of finance, exercised 10,000 options at $6 (Canadian) each on Aug. 5, and then sold the shares for between $36 and $38.30 for profit of more than $311,500. James Estill, a director, sold 5,000 shares at a range of prices for $176,751.
Mr. Kavelman said many of the insiders were not in a position to know anything material, if a deal had been on the table. Also, he said some of these employees instruct their brokers to sell the stock automatically when it reaches a specific price threshold.
"I don't think there was a group of folks waiting around here saying 'Aha! There's a rumour out there that's driving this up, I'm going to sell this today.' I mean, I'm sure people liked that the price was higher, but many of them would have had orders in prior to that which would be price sensitive."
Officials from both Nasdaq and Market Regulation Services Inc. (RS), a Canadian markets watchdog, contacted RIM to inquire about the surging stock, but did not advise the company to clarify the situation with a public statement, Mr. Kavelman said. Rather, he said, the regulators told the company it could stick with its "no comment" policy for a few days to see whether the rumours dissipated on their own, which they eventually did.
Maureen Jensen, vice-president of market surveillance at RS, said the regulator does not comment on its communications with individual companies.
"There are always tough situations. You try to deal with them as best you can, and as responsibly as you can, according to the rules each time they come up, and it's a bit of a judgment call," Mr. Kavelman said.
As it turns out, the insiders would have been better off if they had held on to the shares a bit longer. The stock fell to $34.25 on Aug. 8, but has since been on an impressive run, backed by positive analyst recommendations. Yesterday, it closed at $40.10: higher than the peak it reached during the takeover rumours.
The problem with commenting on these rumours, according to Mr. Kavelman, is knowing where to draw the line. If a company selectively dismisses one rumour, yet declines to comment on another, the latter instance could be interpreted by the market that a deal is imminent.
That said, if a company declines to comment on a rumour that has seriously affected its stock, he agreed it might make sense for insiders to sit on the sidelines for a while until order is restored.
"I think that makes sense," he said. "It's a question of degree."