Nov. 6 (Bloomberg) -- Yahoo! Inc. Chief Executive Officer Jerry Yang apologized to the mother of an imprisoned Chinese dissident during testimony at a heated Congressional hearing probing the company's role in jailing the man.

Members of the House Foreign Affairs Committee repeatedly attacked Yang and Yahoo's decision to give Chinese officials e- mail records of journalist Shi Tao, who was later sentenced to 10 years in prison.

``Much of this testimony reveals that while technologically and financially you are giants, morally you are pygmies,'' Committee Chairman Tom Lantos, California Democrat, said at the hearing today in Washington.

The Shi Tao case highlights the dilemma technology companies face as they expand in countries with free speech restrictions. The Foreign Affairs Committee last month approved legislation making it a crime to aid countries in limiting Internet access to restrict human rights, citing Yahoo's role in Shi's arrest.

China was home to 162 million Internet users at the end of June, second only to the U.S., according to the government-backed China Network Information Center. The nation may surpass the U.S. next year, according to Liu Bin, an Internet analyst at Beijing- based research firm BDA China Ltd.

Yahoo, based in Sunnyvale, California, doesn't operate a subsidiary in China, Yang said. In 2005, Yahoo sold its Chinese operations to Alibaba.com Ltd., operator of China's largest online trading site for companies. Yahoo owns a 40 percent stake in Alibaba, according to Yang.

Earlier Apology

As Yang emphasized that Yahoo no longer controls its China operations, lawmakers questioned him and Callahan repeatedly on Yahoo's engagement in China and other restrictive regimes.

``You are still major shareholders,'' said Rep. Christopher Smith, referring to Yahoo's stake in Alibaba. Smith compared Yahoo's role to that of International Business Machine Corp.'s German operations, which aided the Nazis during World War II.

``There certainly is a parallel here,'' said Smith, a New Jersey Republican.

Yahoo shares fell 4.6 percent, or $1.43, to $29.93 in Nasdaq Stock Market composite trading.

Yahoo General Counsel Michael Callahan told Congress last year that the company didn't know about China's probe when it surrendered the data. Last week, he apologized for not revealing that he had later learned more about the case.

`Spineless and Irresponsible'

``While Mr. Callahan may not have known the relevant facts, other Yahoo employees, in fact, did know the nature of the Chinese investigation against Shi Tao prior to our committee hearing,'' Lantos said. He called Yahoo's actions ``spineless and irresponsible.''

Callahan said he accepted ``responsibility'' for Yahoo's failure to contact lawmakers after he found out the nature of the Chinese government's request during a separate investigation. He said no Yahoo employees had been fired over the incident.

At the hearing, Yang apologized to the wife of dissident Internet writer Wang Xiaoning as well to Shi Tao's mother and Yu Lin. Both women were present in the chamber.

Wang was arrested in 2002 for using a Yahoo account to advocate for ``open elections, a multiparty system and separation of powers in the Chinese government,'' Lantos' office said in a statement. The two women are suing Yahoo in San Francisco federal court, Lantos spokeswoman Lynne Weil said in the statement.

`Personally Apologize'

``I want to personally apologize to them and their families for what they are going through,'' Yang said.

Rep. Smith called on Yahoo to settle the San Francisco lawsuit.

``Settle it and settle it generously and in their favor,'' he said today.

Yang said Yahoo is working with human rights groups to develop an industry code of conduct for technology companies.

``We're all focused on protecting and promoting free expression and privacy,'' Yang told the committee members.

Lantos called on Yang and Callahan to testify after hearing from the Dui Hua Foundation. The San Francisco-based human rights group disclosed documents in July that appeared to show Yahoo knew Chinese authorities asked the company for information that would implicate Shi Tao as a dissident. The Beijing State Security Bureau asked for documents in a case related to state secrets.

Political Dissent

``One does not have to be an expert in Chinese law to know that `state secrets' charges have often been used to punish political dissent in China,'' Dui Hua publications manager Joshua Rosenzweig said in July in a statement.

At the congressional hearing last year, Callahan said Yahoo had ``no information about the nature of the investigation'' when it turned over Shi Tao's Internet user information to the authorities.

``A company of Yahoo's resources should have taken every conceivable step to prevent the automatic compliance with a request from the Chinese police apparatus,'' Lantos said in his opening remarks. ``To this day, Yahoo has failed to change any of its practices in order to prevent such collaboration.''

Yahoo's profit fell less than analysts anticipated last quarter after a 60 percent drop in 2006 brought on by competition with Google. Yang, who returned as CEO in June, is seeking to accelerate growth in Yahoo's Internet advertising business and won deals last month with Forbes.com and WebMD Health Corp.

To contact the reporter on this story: Carlyn Kolker in Washington at ckolker@bloomberg.net.

Last Updated: November 6, 2007 16:25 EST