HONG KONG COUPLE SET ALARM BELLS RINGING By Tom Mitchell and Sundeep Tucker in Hong Kong
Friday, May 11, 2007
In the three weeks before Rupert Murdoch sprung his bid for the Dow Jones' publishing empire, a Hong Kong-based couple with no history of trading in the stock spent $15m to accumulate 415,000 shares.
Three days after News Corp's bid was revealed, Dow Jones shares soared 57 per cent, and Kan King Wong and Charlotte Ka On Wong Leung placed an order to sell the lot, which would have booked them a tidy profit of $8.2m.
The riddle as to whether the Wongs were just lucky or illegally armed with inside information will begin to be unravelled on June 18, when the first hearing in the case is due to take place in Manhattan federal court. Either way, the mechanics of the trade suggest they did very little to avoid detection.
If innocent, the Wongs acted in a manner that was almost guaranteed to draw attention. If guilty, the couple all but ensured they would get caught.
Their trades and money transfers were routed through prestigious US financial institutions, where hyper-alert and risk-averse bank officers help the US Securities and Exchange Commission and other regulators keep tabs on suspicious transactions. Had they traded through banks with a lesser presence in the US – or domiciled in a country that did not have an extradition treaty with America – the affair might never have seen the light of day. According to the SEC, the Wongs used a Merrill Lynch account in Hong Kong, which they first opened in May 2004. At the time, they reported a combined net worth of $1.9m.
The SEC says that the couple also appears to have used a JPMorgan account in Brussels, through which as much as $6.8m may have passed as they built up their portfolio.
Michael Leung – a prominent Hong Kong businessmen and Ms Wong's father – also transferred $3.1m to his daughter and son-in-law, according to the SEC.
Mr Leung is a long-time business associate of Sir David Li, a leading banker in the territory and a Dow Jones director.
The SEC's investigation is expected to look at people with whom the Wongs might have come into contact.
However, the SEC has not accused Sir David of any wrongdoing in court filings.
Sir David could not be reached for comment by the FT, but in other media reports he was quoted denying disclosing any information about Dow Jones to anyone.
Merrill Lynch said yesterday: “Insider trading is a violation of both the law and Merrill Lynch policy and we co-operate fully with the authorities investigating suspect cases.” It declined further comment on the case.
Under usual practice, suspicious trading activity is reported to in-house compliance units, who investigate and decide whether to pass reports up to global compliance officers.
It is understood that the SEC was first notified of the Wongs' trades on May 4 – the same day the couple placed a sell order on their entire holding of Dow Jones stock.
Always suspicious when investors sell a large amount of recently acquired stock, the couple's timing raised even more alarm bells coming just three days after Mr Murdoch's bid was announced. Regulators moved to freeze the Wongs' account on Tuesday, a day before the proceeds would have been released to them.
In its filing against the Wongs, the SEC said it would seek to “depose witnesses, subpoena bank and brokerage records . . . and take other discovery on an expedited basis”. Such other discovery could well include taped phone calls between the Wongs – or their representatives – and brokers.
