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- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
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.