More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Robert W. Kwok, formerly Yahoo’s senior director of business management, and Reema D. Shah, a former mutual fund manager at the Ameriprise Financial unit RiverSource Investments LLC, were charged Monday with insider trading and have agreed to settle the SEC’s charges.
The U.S. Attorney’s Office for the Southern District of New York also announced parallel criminal charges on Monday. The SEC’s investigation is continuing; Kwok and Shah have pled guilty to the criminal charges, the former to conspiracy to commit securities fraud, and the latter to both a primary and conspiracy charge. Both are awaiting sentencing.
According to an SEC statement, Kwok and Shah met in January 2008 when both were attending professional events in the same facility. They stayed in touch after the events were over, speaking frequently by phone, and Kwok kept Shah apprised of Yahoo-related information. In exchange, Shah advised Kwok about information she learned in the course of her own work, and both, according to the SEC, benefited from the exchange.
Shortly after they met, according to the complaint, Shah advised Kwok that she had learned through an inside source of plans by Autodesk to acquire Moldflow Corp. Kwok subsequently bought shares of Moldflow in April of that year, and when the acquisition was announced on May 1 Kwok sold his shares for a profit of $4,754.
Subsequently, in July of 2009, Shah heard media reports of a forthcoming deal between Yahoo and Microsoft, she sought confirmation from Kwok, who provided her with information on the deal. Based on that information, Shah was instrumental in getting the funds she helped to manage to purchase more than 700,000 shares of Yahoo on July 16. On July 28 the shares were sold for about $389,000 in profits.
Under the settlements with the SEC, which must be approved by the court, Kwok and Shah acknowledged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. 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 addition, financial penalties and disgorgement will be determined by the court at a later date. The SEC complaint was filed in U.S. District Court for the Southern District of New York.