A former Yahoo executive and a former mutual fund manager at a subsidiary of Ameriprise Financial have agreed to settle insider trading charges, the U.S. Securities and Exchange Commission announced today.
The SEC alleges that Robert W. Kwok, Yahoo's former senior director of business management, and mutual fund manager Reema D. Shah shared confidential information in 2008 and 2009 after a chance meeting in a hallway. The information included a tip about a search engine partnership between Yahoo and the Microsoft.
The allegations resulted in a parallel criminal case also announced today by the U.S. Attorney's Office for the Southern District of New York, according to a SEC press release. Kwok pled guilty to conspiracy to commit securities fraud, and Shah pled guilty to both a primary and conspiracy charge. Both are awaiting sentencing.
CNET contacted Yahoo for comment on the matter and will update the post when we learn more.
According to the complaint (PDF), Kwok and Shah agreed to settle the SEC's charges. Under the settlement, Shah, a Menlo Park, Calif., resident, will be barred from the securities industry, and Kwok, a Danville, Calif., resident, will be barred from serving as an officer or director of a public company.
Kwok allegedly told Shah in July 2009 that a deal between Yahoo and Microsoft, which had been the subject of rumor, would be announced soon. Based on Kwok's tip, Shah prompted the mutual funds she managed to buy more than 700,000 shares of Yahoo stock that were later sold for profits of about $389,000.
The SEC said the roles were reversed a year earlier. Shah tipped Kwok with information about an impending acquisition announcement between two other companies. Kwok traded in a personal account based on the confidential information for profits of $4,754.
"Kwok and Shah played a game of you scratch my back and I'll scratch yours," Scott W. Friestad, associate director in the SEC's Division of Enforcement, said in a statement. "When corporate executives and mutual fund professionals misuse their access to confidential information, they undermine the integrity of our markets and violate the trust placed in them by investors."
According to the SEC's complaint, Shah and Kwok first met in January 2008 when Shah was attending a real estate conference in California at the same facility where Yahoo was holding a meeting. The two met in a hallway and began discussing their respective businesses. Afterward, they spoke frequently by phone or in person. Kwok provided Shah with information about Yahoo, including whether Yahoo's quarterly financial performance was expected to be in line with market estimates. In return, Shah provided Kwok he used for personal investment decisions.
The SEC alleges that in early 2008, shortly after their initial meeting, Shah told Kwok that she had learned through an inside source at Autodesk Inc. that it intended to acquire Moldflow. Kwok then purchased 1,500 shares of Moldflow in a personal account from April 7 to April 25. Autodesk and Moldflow announced the acquisition on May 1, and the price of Moldflow stock increased 11 percent. Kwok sold his shares for a profit.