SEC gets $24M settlement in Dow Jones case
One of the biggest inside trading investigations of 2007 came to a conclusion when the Securities and Exchange Commission announced a $24 million settlement with a former director of Dow Jones and three others.
David Li, the former Dow Jones board member, had been accused of passing confidential information about Rupert Murdoch's $5 billion offer for the company to a friend, Michael Leung. Li, the chairman and CEO of the Bank of East Asia, will pay an $8.1 million civil penalty to resolve the matter. Leung will disgorge the $8.1 million profit he made off the tip, and pay a further penalty of $8.1 million.
Murdoch, the CEO of News Corp., began discussing an unsolicited $60-per-share bid with management of Dow Jones, publisher of The Wall Street Journal, last March. Dow Jones stock traded around $35 at the time. According to the SEC, Li learned about the offer on April 12. The next day, Li and Leung, a long-time friend and Hong Kong business associate, shared a flight from Hong Kong to Shanghai. The SEC alleges that Li informed Leung of the offer on that flight.
In the next several days, Leung purchased more than $7 million of Dow Jones stock through the Merrill Lynch account of his daughter, Charlotte Wong, and her husband, K.K. Wong.
Through the last two weeks of April, while he received frequent updates on Murdoch's offer, the SEC says Li stayed in touch with Leung, meeting at least once more and speaking frequently on the telephone.
On April 30, Leung purchased an additional $7.8 million worth of Dow Jones shares. His son-in-law bought $71,000 worth of stock in the company.
On May 1, Murdoch's offer was disclosed publicly for the first time. Dow Jones stock rose immediately from $37 per share to $57, a gain of 54 percent. Three days later, Leung placed an order to sell his Dow Jones stock, which would have netted him a profit of $8.1 million.
Within days, the SEC got an emergency court order freezing Leung's account and preventing the profits from leaving the United States.
"Protecting the integrity of our markets in today's world of global trading and instant communications requires real-time enforcement across national borders," said SEC Chairman Christopher Cox. "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."
As part of the settlement, Li and Leung neither admitted nor denied the alleged conduct. Li does not sit on the board of any other U.S. companies.
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