Friday, February 1, 2008

Dow Jones's Li Settles SEC Insider-Trading Claims (Update1)

By David Scheer

Feb. 1 (Bloomberg) -- Former Dow Jones & Co. director David Li and a Hong Kong couple settled a U.S. Securities and Exchange Commission investigation into alleged insider trading during the company's takeover last year, two people with direct knowledge of the matter said.

Li, 68, chairman of Bank of East Asia Ltd. and a member of Hong Kong's legislature, will pay a fine of about $8 million and Kan King Wong and Charlotte Ka On Wong Leung will forfeit a similar amount in trading profits, according to the people, who declined to be identified because the accords aren't public.

The SEC approved the settlements at a closed-door meeting in Washington yesterday and they may be announced as soon as next week, the people said.

Li is the most high-profile figure to be penalized so far in an SEC crackdown on trading ahead of company mergers and acquisitions. The agency also sued former employees at UBS AG, Morgan Stanley, Bear Stearns Cos. and Credit Suisse Group in the past year.

Li denied leaking confidential information after the SEC filed suit against the Wongs in federal court in Manhattan last May. The suit claimed their well-timed bets on Dow Jones stock generated $8.2 million of profit when Rupert Murdoch's News Corp. unveiled a $5.1 billion bid for the publisher of the Wall Street Journal.

Lance Croffoot-Suede, an attorney for Li at Linklaters in New York, declined to comment, as did Michele Hirshman, an attorney for the Wongs at Paul, Weiss, Rifkind, Wharton & Garrison LLP in New York. SEC spokesman John Nester and Dow Jones spokesman Howard Hoffman also declined to comment.

Buying Spree

Ranked by profits, the case was the largest among a spate of insider-trading lawsuits filed by U.S. regulators against foreign investors last year. In May, the SEC claimed that Ajaz Rahim, former head of investment banking for Faysal Bank Ltd. in Karachi, Pakistan reaped more than $7 million by trading on tips from an associate at Credit Suisse in New York. SEC lawsuits also targeted people from Canada, Switzerland, the U.K., Brazil and Taiwan.

Rahim has denied the accusations and is fighting extradition on related criminal charges.

Shares of Dow Jones surged 55 percent when News Corp.'s offer was announced May 1. A week later, the SEC filed suit against the Wongs, claiming they bought 415,000 shares valued at more than $15 million in less than three weeks before the takeover became public. Their buying spree allegedly accounted for more than 3 percent of the shares' total trading volume during the period.

Wells Notice

The Wongs didn't originally have enough money in their brokerage account to fund the transactions, the SEC said in its complaint. They allegedly spent more than a week amassing money, obtaining $3.2 million from Charlotte Wong's father, Michael Leung.

Michael Leung, who has done business in the past with Li, wasn't accused of wrongdoing in the suit. His attorney, Andrew Levander, didn't respond to an e-mailed request for comment.

Li received a so-called Wells Notice in July, indicating the SEC's investigators planned to recommend legal action against him. Li confirmed the notice in a statement at the time, denied breaking any laws and said he would defend himself ``vigorously,'' if the SEC commenced any proceedings. The SEC has never publicly accused him of wrongdoing.

The Financial Times reported Jan. 27 that Li was negotiating an agreement with the SEC. A day later, the South China Morning Post quoted him saying he had ``no knowledge'' of the reported settlement.

No Admission

He and the Wongs won't admit or deny wrongdoing under the accords, one of the people familiar with the case said. Li won't be barred from serving as an officer or director at a U.S. public company under his agreement with the SEC, the person said.

Li is a director at Bank of East Asia, Hong Kong's third- biggest bank by assets, as well as other Hong Kong companies including PCCW Ltd., the city's largest phone carrier; SCMP Group Ltd., publisher of the South China Morning Post newspaper; and Hongkong & Shanghai Hotels Ltd., operator of the luxury Peninsula chain.

He is chairman of the Chinese Banks Association Ltd.

No comments: