As long-suffering investors enjoyed the stellar gains of leading Internet shares last year, top insiders at those same companies took full advantage of the rally and sold huge amounts of stock.

According to recently filed documents with the

Securities and Exchange Commission

, the founders of

eBay

(EBAY) - Get Report

,

Yahoo!

(YHOO)

and

Amazon.com

(AMZN) - Get Report

all sold off or otherwise disposed of sizeable stakes in their companies last year as the stocks soared.

In 2003, shares of Amazon and Yahoo! skyrocketed over 175% each, while eBay's stock rose 90.5%.

Many of the sales were conducted as part of regular diversification programs and some of the proceeds went to charitable causes. But the sheer size of the sales -- in the case of Jeff Skoll, eBay's first employee, nearly 25% of his holdings -- has some investors unnerved. Insider sales of options or previously restricted stock increase the total shares outstanding, resulting in

dilution of value for other shareholders. Heavy selling by company insiders is also viewed as a contrarian indicator for the shares.

"They're acting in a prudent manner from their personal standpoint," said Ken Broad, a portfolio manager at Transamerica Investment Management. But "as an investor, I hate it. I want them to be imprudent with their

personal capital" by being overly exposed to the stock. (Broad's fund doesn't hold eBay, Yahoo! or Amazon shares.)

It remains to be seen whether the insider sales will shake investors' confidence. Despite longstanding concerns about

insider sales and its

oversized stock options program, eBay is trading near its all-time high. Yahoo!'s stock has weathered similar concerns and largely retained its triple-digit share gain from last year.

Even Amazon is still sitting far above where it began last year, despite a

sharp slide in recent weeks.

Still, the size of sales last year by some founders is eye-opening:

In addition to Skoll, who disposed of 17 million shares, eBay's Pierre Omidyar ended 2003 with 9 million fewer shares of the online auction giant vs. the end of 2002. The shares Omidyar disposed of represented about 7.1% of the amount of eBay shares he held at the end of 2002;

Amazon.com's Jeff Bezos sold off 3.8 million shares, or 3.5% of his holdings in the e-commerce giant;

Jerry Yang of Yahoo! sold 3.1 million shares, or 7.7% of his stake in the Internet portal while fellow Yahoo! Chief David Filo disposed of a net 1.1 million shares, or 2.3% of his holdings at the end of 2002.

The selling has continued in 2004. Since the beginning of the year, Omidyar has sold 3 million shares, or 2.6% of his stake in eBay at the end of 2003, raising about $203.74 million. Bezos has sold 900,000 shares, about 0.9% of his Amazon holdings, for about $41.64 million.

Omidyar sold his shares this year to invest in Montage Hotels & Resorts, according to published reports. Marguarite Clark, a spokeswoman for the luxury hotel chain, confirmed Omidyar's investment, but referred questions about the details of Omidyar's stock sales to his personal publicist. Omidyar's publicist did not return calls seeking comment.

Bezos' stock sales are part of a strategy of liquidity and diversification, said Amazon spokeswoman Patty Smith. The e-commerce baron's sales are done on a regular basis that is outside of his control, but is based on parameters he sets, she said.

Similarly, Yang's sales are part of the normal stock and options sales at Yahoo! that are typically done for estate planning and diversification reasons, said company spokeswoman Joanna Stevens.

Meanwhile, of the shares Filo disposed of, 1 million were given to charity, Stevens said. Filo, who also received approximately 215,000 stock options last year, sold off about 300,000 other shares, or less than 1% of his total Yahoo! stake, according to SEC filings.

eBay representatives did not return calls seeking comment, nor did a representative for Skoll's charitable foundation.

In the past, eBay representatives have said the company's executives typically sell their shares at regular intervals to diversify their holdings.

Charity Begins Online

Both Omidyar and Skoll were included in the

Chronicle of Philanthropy's

recent list of 2003's top donors. Skoll donated about $81.3 million worth of eBay stock to his foundation last year, the nation's 11th largest gift, according to the

Chronicle

.

Meanwhile, Omidyar and his wife donated $80.5 million to a variety of charitable institutions, including their own foundation and non-profit organizations, according to the

Chronicle

. The Omidyars' total gift ranked as the 13th-largest charitable contribution in 2003. The

Chronicle

did not specify the form in which the Omidyars made their gift.

Regardless, neither Skoll nor Omidyar likely donated all of their disposed stock to charity. Assuming that the

Chronicle's

figures are accurate, and based on eBay's 52-week trading range, neither insider donated more than about 2.4 million shares in 2003.

Skoll and Omidyar have chronically disposed of large portion of their shares. In 2001, for instance, Skoll's holdings in eBay dropped by 8 million shares, or 9.9% of his holdings from the beginning of the year. That same year, Omidyar disposed of 6.9 million shares, or 5% of his holdings from the beginning of the year.

But last year represented a significant jump in the pace of their divestitures.

"It's definitely a red flag," said one hedge fund manager, who asked not to be named. "These companies are overvalued, so it makes sense for

insiders to take money off the table when they can get more per share. But for Jeff

Skoll to sell one-quarter of his stake -- it's not a huge vote of confidence." The manager's fund is short Amazon, but has no position in Yahoo! or eBay.

While Skoll and Omidyar disposed of shares through the bust and recent boom, Bezos, Yang and Filo all picked up the pace of their stock disposals in the past two years.

Filo's stake in Yahoo! actually increased by 66,532 shares from the end of 1999 to the end of 2002, largely because of options awards. Yang sold off 569,518 shares in 2000 and 2001, just 1.3% of his stake at the end of 1999. But Yang sold off 4.6 million shares in 2002, equivalent to about 10.3% of his holdings at the beginning of that year.

Meanwhile, Bezos sold more than twice as many shares in 2002 as he did in 2000 or 2001.

Susan Fulton, president of Fulton Breakefield Broenniman, a Bethesda, Md.-based investment advisory firm, sees at least one positive to the founders' sales. Because of the way the initial public offerings at most Internet firms were structured, company founders tended to hold on to large stakes after the offerings. That's left relatively few shares available for trading on a daily basis, said Fulton, who personally holds shares in Yahoo! and whose firm holds stakes in Amazon and eBay.

"It's a relief to get a little float," she said. "But I'd rather see them sell it off in bits and pieces than decide to dump it off all at once."