The Wall Street Journal-20080206-Trading in Dow Jones Subject of SEC Accord- Former Director Li- Others Penalized- Fateful Plane Ride
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Trading in Dow Jones Subject of SEC Accord; Former Director Li, Others Penalized; Fateful Plane Ride
Full Text (629 words)One day after privately learning of News Corp.'s offer last year to buy Dow Jones & Co., then-Dow Jones director David Li boarded a plane to Shanghai, where he disclosed the bid to a longtime business associate, setting off a series of trades that resulted in more than $8 million in profits.
Yesterday, the Securities and Exchange Commission announced a settlement with Mr. Li and two others to pay a total of $24 million in illegal profits and penalties to resolve insider-trading charges.
Mr. Li, chairman and chief executive of Bank of East Asia Ltd., agreed to pay an $8.1 million penalty to settle insider-trading charges with the SEC, without admitting or denying wrongdoing. Mr. Li is no longer a director of Dow Jones, following the company's merger with News Corp. in December. Dow Jones is publisher of The Wall Street Journal.
Mr. Li's friend, Michael Leung, agreed to pay $8.1 million in disgorgement of illegal profits and an $8.1 million penalty. Mr. Leung's son-in-law Kan King Wong, who helped execute Mr. Leung's trades and placed some of his own, agreed to pay $40,000 in disgorgement of ill-gotten gains, plus a $40,000 penalty. Mr. Leung's daughter, Charlotte Ka On Wong Leung, settled without any fines.
"We hope this case sends a forceful reminder to corporate insiders that they need to exercise careful discretion when discussing important business matters outside the boardroom and executive suite," Linda Thomsen, the SEC's director of enforcement, said in a statement. The settlement comes as the SEC has stepped up its investigations into suspicious trading around merger announcements.
A lawyer for Mr. Leung said his client is happy to put the issue behind him. A lawyer for the Wongs declined to comment. A lawyer for Mr. Li didn't return a call for comment. The SEC complaint details a classic insider-trading scenario, with a corporate insider breaching duties of confidentiality by sharing nonpublic market-moving information with friends or family. The alleged insider-trading activity took place over roughly five weeks.
News Corp. founder Rupert Murdoch expressed an interest in buying Dow Jones for $60 a share at a March 29 meeting with Dow Jones's then- CEO, Richard Zannino. Dow Jones began notifying board members over the next several days.
Mr. Li was notified of the News Corp. offer by Dow Jones's general counsel on April 12, according to the SEC's complaint. The next day, during a flight to Shanghai, Mr. Li told his friend and business associate Mr. Leung about the $60-a-share offer. Soon after landing, Mr. Leung called his son-in-law, who over the next three trading days placed buy orders for 200,000 shares of Dow Jones stock for $7.175 million. Mr. Leung wired the money into his son-in-law's account. During the same period, the son-in-law, Mr. Wong, placed his own order for 2,000 shares of Dow Jones.
Mr. Li received updates about the takeover offer, including from attending an April 27 Dow Jones board meeting. The SEC alleges that during that same period, Mr. Li spoke over the phone and met with Mr. Leung at least once in person. The SEC complaint didn't specifically state what the two men discussed.
Later, on April 30, Mr. Leung instructed his son-in-law to buy another 215,000 shares of Dow Jones, according to the complaint. The following day, News Corp.'s offer became public, driving Dow Jones shares up more than 50%.
On May 4, Mr. Leung, through his son-in-law, placed an order to sell his entire position in Dow Jones, some 415,000 shares, netting $8.1 million in profits. Mr. Wong, the son-in-law, also instructed his broker to sell his position, netting him $40,076 in profits. The SEC makes no allegation that Mr. Li traded in Dow Jones stock. Merrill Lynch & Co. alerted the SEC of the big sell order.
