The Search Alliance between Yahoo and Microsoft had some unintended beneficiaries (now casualties). Yahoo’s former senior director of business management, Robert Kwok, has pled guilty to conspiracy to commit securities fraud, after being accused that he told a mutual fund manager in July 2009 that the deal between Yahoo and Microsoft was imminent.
Among its many provisions, the deal — officially announced in late July of 2009 — called for Microsoft to pay Yahoo $50 million annually, for three years, for implementation costs.
The mutual fund manager, Reema Shah, formerly of Ameriprise Financial Inc., had heard rumors that a deal — what became The Search Alliance — was in the works, and called Kwok to find out. Despite Kwok’s responsibility to keep confidentiality, he told Shah about the soon-to-be-announced agreement.
Afterwards, the mutual funds she managed bought more than 700,000 shares of Yahoo stock that were later sold for profits of around $389,000. Shah also pled guilty to securities fraud in the case.
Kwok may have talked to Shah because she previously did a similar favor for him, tipping him to that Autodesk intended to acquire Moldflow Corporation. He traded on that information, and made $4,754. The two met in January 2008, and the Securities and Exchange Commission (SEC) says they began a relationship in which Kwok provided Shah with non-public information about Yahoo — including about its quarterly financial performance. In return, she told him information she learned in the course of her work.
“Kwok and Shah played a game of you scratch my back and I’ll scratch yours,” said Scott W. Friestad, associate director in the SEC’s Division of Enforcement, in a statement.
Both Kwok and Shah have agreed to settle SEC charges and have also pled guilty in parallel criminal cases. Under the settlement agreement, Shah will be barred permanently from working in the securities industry. Kwok will be barred from serving as an officer or director of a public company. Penalties and sentences haven’t yet been announced.