[gwanstarr]

FINANCIAL POST: RIM is in trouble but don't follow anyone


Theresa Tedesco, Financial Post � Nov. 2, 2011 | Last Updated: Nov. 2, 2011 3:08 AM ET

Victor Alboini must be undergoing his own "transformational change" given his recent activist crusade against Research In Motion Ltd.

For the past two months, Alboini has used his perch as chairman and chief executive of Canadian merchant bank Jaguar Financial Corp. to front an activist campaign demanding a corporate shakeup at the struggling Waterloo, Ont.-based maker of the BlackBerry smartphone and PlayBook tablet computer.

With the heft of 40 million shares, or 8% of RIM's stock, Jaguar and a "loose association" of 13 institutional partners has been slinging arrows in the name of value creation and gaining some currency as the BlackBerry maker's stock price dips below $20 for the first time since 2004. Given that some industry analysts predict RIM's share price will eventually nose-dive into single digits during the next 12 months, Alboini hopes that some of the other larger players among the more than 1,000 institution managers listed as RIM stockholders will join his "cause for change."

Essentially, Alboini figures that a reasonable price range for RIM's stock should be between $40 and $60 per share. Jaguar, which invests in undervalued small-cap companies, kicked into gear after RIM's annual general meeting in July when the company decided to defer the contentious issue of splitting the chief executive and chairman titles from co-founders Mike Lazaridis and Jim Balsillie. Jaguar accumulated RIM stock on its downslide in the hope of cashing in on the upswing.

To kick-start that ascent, Alboini, a former securities partner at Bay Street law firm McCarthy Tetrault, outlined three key elements of his two-month campaign: RIM's board of directors should hit the eject button and replace current co-CEOs Mike Lazaridis and Jim Balsillie; select an independent chairman and release the "irongrip of the co-CEOs"; and consider a process to examine strategic options that could lead to a sale of the company as a whole or spinning off parts into separate public companies.

"We really think that the corporate governance structure is very, very weak," Alboini said in an interview with the Financial Post.

The message isn't new nor is it cutting edge, but Alboini has attracted significant media attention in Canada and the United States.

Still, it's curious that Alboini is carrying the spear for good corporate governance given his spotty record with securities regulators in this country.

Consider that while he was launching his campaign against RIM, the Investment Industry Regulatory Organization of Canada (IIROC) launched its own proceedings against Alboini and Northern Securities Inc., a full-service brokerage firm where he is chairman and chief executive, for allegedly having "failed to create and maintain a culture of regulatory compliance."

According to an Oct. 5 release by IIROC, the national self-regulatory organization that oversees investment dealers and trading activities in Canada, Alboini is singled out for having "demonstrated a disregard for regulatory compliance," and accused, among other things, of having "failed to transact business openly and fairly." A hearing is scheduled for May 2012.

Alboini's firms have been in the regulators' crosshairs before. In 2004, Northern was accused of violating B.C. Securities laws by trading in stocks of companies that had a cease trade. Northern paid a $10,000 fine and made changes to its internal trading systems.

In 2008, Market Regulation Services Inc. fined Northern $125,000 and ordered it to pay an additional $50,000 in costs for "insufficient supervision" of certain trading practises and compliance testing.

In 2010, Northern was again accused of acting "contrary to the public interest" by the B.C. Securities Commission stemming from cease-trade violations and was fined $12,000.

In May 2011, IIROC claimed that Northern breached dealer rules by failing to ensure clients were qualified as accredited investors. Northern was fined $12,500 and ordered to disgorge profits made on the transactions.

With that track record, why would anyone listen to Alboini spout off about RIM?

"You don't have to," he said.

For one, he insists "we have a culture of compliance at Northern Securities," and although "we respect regulators, that doesn't mean they're right."

Alboini said that securities regulators often "broaden allegations or expand on them," in an attempt to force settlements, even though in some cases, the claims are "outrageous" or "absolute nonsense," because many of the people conducting the investigations are "not skilled ... they have to be educated."

The end-game for regulators, according to Alboini, is "to make you look very, very bad so that you will crumble and say, 'I will settle,' you know, put up a white flag."

Secondly, he says, IIROC is a bankdominated regulatory body that has had a lot of turnover. "What they need to focus on is more substantive matters and complex business models at boutique investment banks and not stuff that they can trumpet as if you don't have a culture of compliance, which in our case is ludicrous," Alboini said.

"In most investment banks, everybody tries to do the best job possible and in a fast-moving industry, there's no question people make mistakes and we're no different," he admitted.

Guess Alboini never heard of what happens to people in glass houses who throw stones.

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[lotuslanderz]

Thanks for posting this. Really interesting read. I especially liked the last line:
Guess Alboini never heard of what happens to people in glass houses who throw stones.

[lnichols]

I'm all for Jim and Mike having less control (and Jim just being ejected totally as his talents are better suited for the used car lot), but this guy just wants the company split up and sold to make money. A change at the top will bring a better stock price. They only need one CEO and they need a strong board to govern the management. Right now Mike and Jim are the Judge, Jury and Executioner at RIM. If it were working that's one thing, but it isn't.

[johnenglish]

LOL, yeah, that's the same as someone saying "it's not my fault I was speeding, the speed limits are too low."

As someone who works in investment banking, IIROC rules are pretty straight forward to follow and you have to be pretty ignorant of them to actually get investigated.

Most of the time when IIROC comes down on people for compliance stuff, it's just laziness on the part of bankers, investment advisors, etc. for not keeping records.

[sam_b77]

LOL, yeah, that's the same as someone saying "it's not my fault I was speeding, the speed limits are too low."

As someone who works in investment banking, IIROC rules are pretty straight forward to follow and you have to be pretty ignorant of them to actually get investigated.

Most of the time when IIROC comes down on people for compliance stuff, it's just laziness on the part of bankers, investment advisors, etc. for not keeping records.

Great analogy...

[sosumi11]

LOL, yeah, that's the same as someone saying "it's not my fault I was speeding, the speed limits are too low."

This might be a good time for RIM to get a speeding ticket just to show the world that they are moving.

[houshinto#IM]

Good article OP. The agenda's and hypocrisies of the very traders that relentlessly bash RIM usually go unreported. Glad that there's an odd occasion where the Mob gets called out.