Calgary's Ensign Energy Services has settled allegations of stock option backdating.
Four of Ensign’s directors, including founder and part-Calgary Flames owner Murray Edwards, will pay the company more than $4 million in order to settle a lawsuit launched by Ensign investor John Paquette. Ensign itself will pay Paquette’s legal fees of $1.09 million.
The settlement was decided out of court.
Option backdating is the practice of changing the date a stock option was granted to make the strike price lower and the option more valuable.
The Ensign case goes back to 2011 when Paquette asked the company to investigate its stock option granting process between 1993 and 2006.
Paquette’s based his allegations on a statistical analysis done by Eric Lie of the University of Iowa, which showed that between 1993 and 2006, eight of 19 grant dates occurred at the lowest trading day of the month for Ensign’s shares.
When public scrutiny of option backdating increased after 2006, none of the options were granted at the lowest trading day of the month.
Ensign launched an internal investigation, which found its stock option granting process was flawed between the period of 1993 until August 2006.
According to court documents, the total calculated loss to Ensign’s capital was $8.7 million. The investigation recommended Ensign take steps to get that money back from four core insiders who had responsibility over the stock option granting process.
In the settlement filed in April, the payments break down as follows:
- Edwards, Ensign’s chairman, will pay $529,288.
- Glen Dagenais, Ensign’s chief financial officer, will pay $2.7 million.
- Robert Geddes and Selby Porter will pay the remainder.
None of the four admitted any liability in the action in making the payments.
Option backdating was a major issue on financial markets in the mid-2000s. Research in Motion executives, including Jim Balsillie and Mike Lazaridis, were slapped with a $77 million fine for the practice in 2009.
At that time, the Ontario Securities Commission said the conduct wouldn’t be tolerated by anyone, but Canadian securities commissions have done very little to investigate other companies — leaving the work to law firms and shareholders such as John Paquette.
Paquette received an honorarium of up to $7,500 for his role in the lawsuit.