The US Securities Commission has accused two Hong Kong residents of using inside information to buy $15 million of Dow Jones stock.
NEW YORK: The US Securities and Exchange Commission has accused two Hong Kong residents of using inside information to buy $15 million of Dow Jones stock ahead of an announcement that News Corp. was seeking to buy the company for $5 billion.
Two weeks before News Corp.'s offer was made public, the 'well-connected' Hong Kong couple borrowed millions of dollars to buy $15 million of the newspaper publisher's stock. It was their first purchase of Dow Jones shares, and a profitable one, the Wall Street Journal reported.
After news of the unsolicited offer became public on May 1, Dow Jones shares rose more than 50 per cent. Three days later, the Hong Kong couple had their broker sell their entire position in the stock for a profit of $8 million.
The Securities and Exchange Commission (SEC) filed a lawsuit against Kan King Wong and his wife, Charlotte Ka On Wong Leung, in the US District Court in Manhattan, charging them with insider trading in connection with their purchase of 415,000 Dow Jones shares.
That's the equivalent of about 3 per cent of the Dow Jones shares traded during the period when the couple was buying, the report said.
A federal judge granted the SEC's request to freeze the Wongs' brokerage accounts at the Hong Kong office of Merril Lynch and ordered the defendants or their lawyers to appear in US court on June 18. The SEC is seeking disgorgement of the couple's allegedly ill-gotten gains, the Journal said.
The couple, who the SEC says had a combined net worth of $1.9 million as of May 12, 2004, works in the telecommunications industry.
The civil case is the first filed by the SEC relating to trading in Dow Jones stock and options in the days surrounding the News Corp. offer.
Last week, the Journal said, the SEC opened an informal inquiry and asked Dow Jones, publisher of The Wall Street Journal, and Rupert Murdoch's News Corp. for information. The New York attorney general also sent subpoenas to Dow Jones and News Corp.
News Corp. declined to comment on the SEC insider-trading action. A Dow Jones spokeswoman declined to comment beyond the company's earlier statement that it would "cooperate fully with the authorities investigating the matter."
In a complaint, the Journal says, the SEC details a 'highly unusual' pattern of trading by the Wongs from April 13 through April 30, the day before the details of the offer for Dow Jones became public.
On April 18, $3.1 million was transferred to Wong's account from her father, Hong Kong businessman Michael Leung Kai Hung, the report says quoting court papers say.
The SEC alleges that money was used to buy some of the Dow Jones shares in question. But Journal said it is not clear how the Wongs might have known about the pending offer, and the SEC complaint doesn't address that issue.
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