Another high profile insider trading trial began in New York City this week. Rajat Gupta, former Goldman Sachs director, has been charged with insider trading in a case that promises to be quite different from other recent high profile trials. This time prosecutors will have to prove their case the old fashioned way using bits and pieces of circumstantial evidence rather than the defendant’s own words caught on wire tap tapes.
At the same time in other New York courtrooms another insider trading case unfolded, although with much less fanfare than that of Mr. Gupta. This one involved Reema Shah and Robert Kwok. Ms. Shah was a portfolio manager at RiverSource Investments, LLC, a registered investment advisor which is a subsidiary of Ameriprise Financial, Inc. Mr. Kwok was a Senior Director of Business Management at Yahoo! Inc.
Ms. Shah and Mr. Kwok met at a California conference center in January 2008 where they were attending separate meetings. Subsequently, the two kept in touch. Mr. Kwok provided Ms. Shaw with information about his company, including if its financial performance would meet market estimates. Ms. Shah provided Mr. Kwok with information from her work as a portfolio manager which aided him in his personal investments.
In early 2008 Ms. Shaw told Mr. Kwok that Autodesk Inc. intended to acquire Moldflow Corporation. She obtained this information from an inside source at Autodesk. Based on the information Mr. Kwok purchased 1,500 shares of Moldflow stock in April 2008. Following the deal announcement he sold it, realizing a profit of $4,754.
Subsequently, in July 2009 Ms. Shaw asked her friend about certain rumors which had been on-going for a considerable period of time regarding his company. Specifically, she wanted to know if a long rumored deal between Microsoft Corporation and Yahoo concerning a potential internet search engine alliance would be forthcoming. Mr. Kwok confirmed the deal would be announced shortly and that Yahoo had carefully guarded the information. Ms. Kwok caused the funds she helped manage to buy 700,300 shares of Yahoo on July 16, 2009. The shares were sold by the end of the month at a profit of $389,000.
Each was named in a criminal information and pleaded guilty. Ms. Shah pleaded guilty to one count of conspiracy to commit securities fraud and one count of securities fraud. Mr. Kwok pleaded guilty to one count of conspiracy. Both are awaiting sentencing.
Ms. Shah and Mr. Kwok were also named as defendants in an SEC complaint alleging violations of Exchange Act Section 10(b). Each settled, consenting to the entry of a permanent injunction, acknowledging the same facts they admitted in their respective criminal cases. Ms. Shaw agreed to be barred from the securities industry. Mr. Kwok agreed to be barred from serving as an officer or director of a public company. Financial remedies will be considered at a later date. SEC v. Shah (S.D.N.Y. Filed May 21, 2012).