It isn’t just hedge funds. A former mutual fund manager at RiverSource Investments (now Columbia Management), a subsidiary of Ameriprise Financial Inc., and a former Yahoo! Inc. executive pleaded guilty yesterday to insider trading according to Federal prosecutors and the U.S. Securities and Exchange Commission.
According the SEC’s complaint, Robert W. Kwok, Yahoo’s senior director of business management, tipped Reema D. Shah, a portfolio manager at RiverSource, in July 2009 that an internet search engine partnership agreement between Yahoo and Microsoft Corp. (“Microsoft”), which had been the subject of market rumors, would be announced soon.
Shah was a portfolio manager for multiple mutual funds and hedge funds at RiverSource, including the Seligman Communications and Information Fund (the “C&I Fund”). Based on the inside information she received from Kwok, Shah allegedly caused the C&I Fund and several other funds to purchase approximately 700,000 shares of Yahoo. Two weeks later, the shares were sold, resulting in profits for the funds of approximately $389,000.
In an emailed statement to Bloomberg, Preet Bharara, U.S. Attorney for Manhattan, said that Kwok also supplied information about Yahoo’s quarterly earnings and potential transactions with outside companies.
According to the SEC complaint, Shah had tipped Kwok material, nonpublic information in April 2008 about an upcoming acquisition of Moldflow Corp. by Autodesk, Inc. The information originated with an Autodesk insider, which Shah received through a series of tippees. According to the SEC complaint, “Both Shah and Kwok knew, or should have known, that the information had been misappropriated in violation of a duty.” Based on that inside information, Kwok allegedly purchased 1,500 shares of Moldflow in a personal account. After the acquisition was publicly announced, Kwok sold those shares, realizing profits of $4,754.
Kwok, 36, of Danville, California, and Shah, 40, of Menlo Park, California, pleaded guilty yesterday to conspiracy to commit securities fraud, according to Bharara. Kwok and Shah also settled related civil cases against them brought by the SEC. Their criminal sentencing is scheduled for September, Bharara said.
This case shows that insider trading prosecution is not solely focused on hedge funds, although it still appears that the majority of the US Attorney’s efforts are directed toward hedge funds. It is possible that this case originated with the SEC, since the SEC’s role seems more prominent than in previous cases led by the Federal prosecutors. In those cases, the SEC’s civil complaints were settled long after the criminal pleas, whereas in this case civil charges were settled simultaneously.
Irrespective of how it originated, the case shows that insider trading prosecutions are far from over.