The Securities and Exchange Commission charged Robert W. Kwok, who was Yahoo’s senior director of business management, and Reema D. Shah who was a former mutual fund manager at a subsidiary of Ameriprise, with insider trading on confidential information about a material business combination partnership between Yahoo and Microsoft Corporation. The SEC alleges that Kwok breached his duty to the company when he told Shah in July 2009 that a deal between Yahoo and Microsoft would be announced soon. The SEC further alleges that a year earlier, the roles were reversed. Shah tipped Kwok with material nonpublic information about an impending acquisition announcement between two other companies. This seems to be a classic case of executives trading inside information for personal gain.
Kwok and Shah pled guilty and acknowledged the facts in the complaint. Not the typical “neither confirm nor deny” settlement of the SEC’s charges. Financial penalties and disgorgement will be determined by the court at a later date. Under the settlements, Shah will be permanently barred from the securities industry and Kwok will be permanently barred from serving as an officer or director of a public company.
In July 2009, Kwok tipped Shah that an internet search engine partnership agreement between Yahoo and Microsoft would be announced soon. Shah was a portfolio manager for multiple mutual funds and hedge funds at RiverSource. Based on the inside information she received from Kwok, Shah caused the funds to purchase approximately 700,000 shares of Yahoo. Two weeks later, she sold the shares for a profit of almost $400,000.
Previously, in April 2008, Shah tipped Kwok material, nonpublic information she had received concerning an upcoming acquisition of Mold flow Corp. by Autodesk, Inc. Based on that inside information, Kwok purchased 1,500 shares of Mold flow in a personal account. After the acquisition was publicly announced on May 1,2008, Kwok sold those shares, realizing profits of $4,754.
It looks Kwok got the better end of the deal financially. Although she ran the benefit through her funds, instead of through a personal account. At least she respected her firm’s policy on personal trading.
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