Dow Jones Director Under SEC Probe
Thursday, July 19, 2007
Securities regulators notified a Dow Jones board member that he could face civil charges for his alleged role in passing secret information before the company announced a bid from Rupert Murdoch's News Corp., according to a source familiar with the investigation.
David K.P. Li, among the wealthiest businessmen in Hong Kong, has been the object of interest from Securities and Exchange Commission investigators looking into unusual stock trades executed before the May 1 notice of the possible deal.
Nearly two months ago, SEC lawyers sought a restraining order against a Hong Kong-based couple who were set to profit by more than $8 million from a series of trades in Dow Jones stock from April 13 to April 30. A federal judge in New York froze the assets of the couple, Kan King Wong and Charlotte Ka On Wong Leung, based on "circumstantial evidence" offered by regulators.
The father of Charlotte Ka On Wong Leung transferred the couple more than $3.1 million to help fund their purchase of 415,000 Dow Jones shares, according to court papers filed in that case. The couple had no previous history of trading in the stock, and had never before traded at such heavy volumes, authorities said at the time.
Michael Leung Kai Hung, Charlotte's father, has business and social connections to David Li.
Li, the chief executive of the Bank of East Asia and the patriarch of a family with significant political and commercial clout, denied the allegations last night. "I have broken no laws and deny the apparent allegations being made by the staff of the Commission," Li said in a statement e-mailed by Bank of East Asia, according to Bloomberg News. "I will defend myself vigorously."
Word of the possible charges, which were reported yesterday afternoon on the Web site of Dow Jones-owned Wall Street Journal, came as the News Corp. deal appears to have moved forward after conflicts concerning editorial independence and the role of the Bancroft family, which holds shares that amount to a controlling interest in Dow Jones.
Before an enforcement lawsuit or settlement is finalized, the SEC's five commissioners must vote to authorize it. Under agency practice, targets of investigations have an opportunity to respond to the possible charges and to try to dissuade regulators from filing a complaint.
Corporate insiders who share information in violation of their duties to a company can face civil insider-trading charges if the recipient of the tip ultimately buys or sells stock. Such cases can be difficult to bring, but investigators generally scour trading records and other data before seeking to interview witnesses and possible suspects.
Eliminating trades based on secret information has become a top priority for SEC and Justice Department officials as a wave of companies merge or seek to gain access to the public markets.
Representatives for Dow Jones and News Corp. declined to comment on the federal investigation yesterday.
Even though Li's name was connected with possible insider trading before News Corp. and Dow Jones began detailed negotiations, the potential for charges came as a surprise to both sides, according to a source close to the talks who spoke on condition of anonymity because of ongoing legal action. Li's possible involvement in insider trading was not brought up during the negotiations between Dow Jones and News Corp., the source said.
Staff researcher Richard Drezen contributed to this report.