The US Securities and Exchange Commission on Tuesday announced a USD24 million settlement with a former Dow Jones & Company board member and three other Hong Kong residents, accused of illegal tipping and insider trading ahead of news of an unsolicited buyout offer from News Corporation that sent Dow Jones shares soaring last spring.
The SEC's complaint, filed in the US District Court for the Southern District of New York, alleges that David Li Kwok Po, a Dow Jones board member at the time - who is also Chairman and CEO of the Bank of East Asia and a member of Hong Kong's Legislative Counsel and Executive Committee - learned of the then-secret News Corp. offer, and illegally tipped off his close friend Michael Leung Kai Hung.
The SEC complaint also alleges that Leung, with the help of his daughter Charlotte Ka On Wong Leung and son-in-law Kan King Wong, purchased approximately USD15m worth of Dow Jones securities in their account at Merrill Lynch.
They stood to make approximately USD8m in illicit profits had the SEC not won an emergency court order within days of the News Corp. offer, freezing the account.
"Protecting the integrity of our markets in today's world of global trading and instant communications requires real-time enforcement across national borders," explained SEC Chairman Christopher Cox.
"This case makes clear that the SEC will move fast, and decisively, not only in the United States but around the world to protect investors from insider dealings and threats to fair and open markets. It also illustrates the value of the significant international partnerships we are developing with our regulatory partners in other nations," he continued.
"Insider trading on merger and acquisition information continues to be a top enforcement priority," added Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "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."
Cheryl J. Scarboro, Associate Director in the Division of Enforcement, observed that:
"Tipping and trading by corporate insiders corrupts our markets, and today's action demonstrates our ability to stop this type of misconduct in its tracks - no matter where it occurs and who is involved."
Without admitting or denying the Commission's allegations, David Li, Michael Leung, K.K. Wong and Charlotte Wong consented to the entry of court orders enjoining them from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. David Li was ordered to pay an USD8.1m civil penalty.
Michael Leung was ordered to pay USD8.1m in disgorgement plus prejudgment interest and an $8.1 million penalty. K.K. Wong was ordered to pay USD40,000 in disgorgement plus prejudgment interest and a USD40,000 civil penalty.
The Commission acknowledged the assistance of Merrill Lynch & Co. and the Hong Kong Securities and Futures Commission in this matter.
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