SEC: Insider Trading on Dow Stock

Discussion in 'Trading' started by qll, May 8, 2007.

  1. qll


    NEW YORK (AP) -- The Securities and Exchange Commission Tuesday accused two Hong Kong residents of "widespread and unlawful trading activity" when they bought $15 million of Dow Jones & Co. stock ahead of an announcement that News Corp. was seeking to buy the company.

    The lawsuit in U.S. District Court in Manhattan named as defendants Kan King Wong and Charlotte Ka On Wong Leung, a married couple. It alleged they made "highly profitable and highly suspicious" stock purchases based on inside information between April 13 and April 30.

    The lawsuit did not explain how the couple would have obtained inside information on the pending offer. There was no information on whether the couple has a lawyer in the United States. A message left with the SEC lawyer who filed the lawsuit was not immediately returned.

    According to the lawsuit, Wong and his wife bought 415,000 shares of Dow Jones stock in the two weeks prior to the May 1 announcement that News Corp. had offered to buy Dow Jones.

    The purchases occurred while the couple possessed material non-public information about the offer of News Corp. to acquire Dow Jones, the lawsuit said.

    "In advance of the announcement, defendants engaged in widespread and unlawful trading activity," the lawsuit said.

    After the public announcement, the value of Dow Jones stock rose 58 percent, causing the couple's Merrill Lynch & Co. account in Hong Kong to grow to $23 million, a net gain of $8.18 million.

    The couple did not have enough money in their brokerage account to buy all the shares of Dow Jones stock on April 13 so $3.18 million was wired to their account five days later from the father of Charlotte, according to the lawsuit.

    The lawsuit sought a court order requiring the couple to give up all profits and pay civil penalties.

    Jeffrey Lerner, a spokesman for the New York attorney general, Andrew Cuomo, declined comment Tuesday on the allegations against the Wongs.

    Federal and state authorities have said they are investigating suspicious options trading in Dow Jones stock prior to the announcement of News Corp.'s $5 billion bid for the financial news publisher.

    News last Tuesday of the $60-per-share bid by Rupert Murdoch's company sent Dow Jones shares soaring.

    A spokesman for Dow Jones, which publishes The Wall Street Journal, said Monday that it has received a subpoena from the New York attorney general's office and a request for information from the Securities and Exchange Commission regarding options trading.

    Dow Jones will "cooperate fully" with the authorities, company spokesman Howard Hoffman said.

    Murdoch's bid has been opposed by Dow Jones' controlling shareholders, the Bancroft family, but the family has been divided over the offer.

    Market Cap: 4.61B
    1-May-07 37.12 58.47 36.04 56.20 43,957,200 56.20
    30-Apr-07 36.50 36.57 36.24 36.33 1,189,100 36.33

    So, I have two questions
    1 SEC cares about $8M profit in a $4B company.
    2 SEC can sue people from overseas? The guys are in Hong Kong, and the lawsuit is in NY. As long as the money is not frozen, why would they care to appear in court?
  2. qll


    The U.S. Securities and Exchange Commission said Kan King Wong and Charlotte Ka On Wong Leung "engaged in widespread and unlawful trading activity" that put them in a position to make an estimated $8.1 million profit on Dow Jones shares.

    The SEC and the New York state attorney general have been investigating unusual trading in Dow Jones' stock and options before the buyout offer was announced on May 1.

    A civil complaint filed by the SEC in Manhattan federal court said the Hong Kong couple bought 415,000 shares of Dow Jones from April 13 to April 30 "while in possession of material, nonpublic information" regarding the impending News Corp. bid.

    The SEC did not specify how it believed the couple learned of the impending takeover offer for the Wall Street Journal publisher.

    In court documents, the commission said it had "strong circumstantial evidence" that improper trading had occurred, saying that the Dow Jones stock purchases increased the value of the defendants' Merrill Lynch & Co. Inc. (NYSE:MER - News) brokerage portfolio by about 25 times and that they had no history of trading that stock in the account previously. Prior to the Dow Jones purchase, the portfolio contained mostly fixed income assets, the SEC said.

    The commission said the pair spent more than a week transferring in millions of dollars from Leung's father, a bank in Brussels and two margin loans to their brokerage account in order to purchase the shares in the two weeks before the bid was publicly announced.

    A Dow Jones spokeswoman said the company has no knowledge of any connection between the Hong Kong couple and Dow Jones at this time. A News Corp. spokesman was not immediately available for comment.

    "Insider trading is a violation of both the law and Merrill Lynch policy and we cooperate fully with the authorities investigating suspected cases," a Merrill Lynch spokesman said.

    According to an address for the couple listed in the SEC complaint, they live in a wealthy neighborhood of Hong Kong that overlooks the business district and Hong Kong harbor. Security guards denied access to the apartment building to reporters seeking to reach the couple for comment.

    A person who answered the phone at an address found on directory assistance for Leung's father, identified as Leung Kai Hung Michael in the SEC complaint, declined to comment.


    Shares of Dow Jones closed at $36.33 the day before the $60-a-share takeover offer for the company became public. After the bid was announced on May 1, the stock jumped above $55.

    The SEC said that on May 4, Kan King Wong placed an order to sell all 415,000 shares of the stock held in the couple's Merrill Lynch account in Hong Kong. At the request of the SEC, a U.S. District Judge in New York agreed to a temporary freeze of those assets.

    Dow Jones said on Saturday that it had received an inquiry from the SEC and a subpoena from the New York attorney general related to trading of its stock and options. A spokesman for News Corp. said at the time that his company had received similar documents.

    A surge in volume in Dow Jones' June and September call options just before the takeover bid was disclosed suggested to some analysts that some investors knew an offer was in the works but were unsure about the exact timing.

    It seems those guys bought stocks, not options. And some others used Call Options.
  3. Interesting article;
    interesting name'',Kan King'':cool:
  4. 1. SEC cares about improprieties in how insider information is handled and the integrity of the marketplace. I doubt our laws should be based on whether the criminal or civil action is big enough for them to care.

    2. If China allows extradition then those two could be on a plane if US govt issues an indictment or warrant. If US jurisdiction cannot attach then it is interesting to see how SEC gets them. If I were the couple and already had the money I would be in Panama :)
  5. mde2004


    Two Wongs don't make a right.