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BlackBerry to ask regulators to probe report on returns

A new Blackberry Z10 smartphone is displayed at a store in New York, March 22, 2013. REUTERS/Brendan McDermid
A new Blackberry Z10 smartphone is displayed at a store in New York, March 22, 2013. REUTERS/Brendan McDermid

By Euan Rocha and Emily Flitter

TORONTO/NEW YORK (Reuters) - BlackBerry plans to ask securities regulators in Canada and the United States to probe what it said is a "false and misleading" report that consumer return rates for BlackBerry's new Z10 smartphone have been especially high.

The Canadian company, which has pinned its turnaround hopes on its new BlackBerry 10 line of smartphones, went on the offensive on Friday after the report from Boston-based research and investment firm Detwiler Fenton sent its stock tumbling on Thursday.

BlackBerry said return rates for its flagship Z10 devices have been at, or below, its forecasts and in line with industry norms.

"To suggest otherwise is either a gross misreading of the data or a willful manipulation," Chief Executive Thorsten Heins said in a statement. "Such a conclusion is absolutely without basis and BlackBerry will not leave it unchallenged."

BlackBerry said Detwiler Fenton had so far refused to share its report or its methods. It said it would present a formal request for an investigation to the U.S. Securities and Exchange Commission and to the Ontario Securities Commission, which is Canada's major securities regulator, over the next few days.

Detwiler has had run-ins with regulators in the past, documents reviewed by Reuters show. But none of the cases involved questions about the accuracy of Detwiler's research or were linked to BlackBerry.

The OSC said it would review the matter once it receives a formal complaint.

"After the first 14 days, quality performance of the Z10 has been in line with similar devices we've launched," said Debra Lewis, a spokeswoman for Verizon Wireless.

A spokeswoman for Detwiler did not respond to a phone call and an email from Reuters seeking comment. The director of research also did not respond to a call seeking comment.

"We believe key retail partners have seen a significant increase in Z10 returns to the point where, in several cases, returns are now exceeding sales, a phenomenon we have never seen before," its report said. Detwiler Fenton gave no details on how it had gleaned this information.

While a number of brokerage firms have in recent weeks published reports saying Z10 sales in the U.S. market are slow, none of them have flagged any major concerns about returns.

Since 2007, the Financial Industry Regulatory Authority, the industry body that oversees broker-dealers, has fined Detwiler over $250,000 and has cited it for several compliance violations over the past decade.

In December 2011, FINRA sanctioned Detwiler for failing to properly supervise its employees and for allowing its brokers to make more trades than necessary in clients' accounts to boost commissions during a period between 2006 and 2009.

In 2007, the firm, which was then called Detwiler Mitchell Fenton & Graves, settled administrative proceedings that the SEC brought against it for failing to supervise Bradford Bleidt, a former employee who had been simultaneously running a $30 million Ponzi scheme.

TURNAROUND PLAN

BlackBerry is attempting to claw back market share lost to rivals such as Apple Inc's iPhone and Samsung Electronics Co's Galaxy line of smartphones with its new line of devices, powered by the revamped BlackBerry 10 operating system.

The new Z10 touchscreen smartphone, the first of its new devices, hit store shelves earlier this year. And the Q10, with BlackBerry's famed physical keyboard, will go on sale in Canada and the United Kingdom before the end of April.

BlackBerry, which has changed its name from Research In Motion, has yet to prove to the market that its new devices can trigger a turnaround. The company expects to report break-even results in the current quarter, but a true picture will not emerge until later this year.

BlackBerry stock has remained highly volatile as analysts are split on whether the turnaround plan will succeed. Research reports often bring major swings in the company's share price.

Shares of Waterloo, Ontario-based BlackBerry, which fell 7.7 percent on Thursday, closed up less than a percent on Friday at $13.64 on Nasdaq.

(Reporting by Euan Rocha, Emily Flitter, Allison Martell, Sinead Carew and Noel Randewich; Editing by Janet Guttsman, Bernadette Baum, Peter Galloway and Tim Dobbyn)

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