In this entrepreneurial city, connections are king and backroom deals are common. So that may help explain the muted reaction this week when a couple linked to a prominent banker was accused of insider trading in Dow Jones & Co. stock.
“In America, you have the SEC taking a very close look at insider trading,” said Raymond So, associate dean of undergraduate studies at the Chinese University of Hong Kong’s school of business administration. “In Hong Kong’s case, we don’t seem to have such enforcement. I cannot say it’s not serious, but it’s very difficult to identify. The market here expects insider trading to occur, but it does not pay too much attention.”
On Tuesday, the U.S. Securities and Exchange Commission accused a Hong Kong couple, Charlotte Ka On Wong Leung and Kan King Wong, of buying Dow Jones shares last month based on an inside tip that Rupert Murdoch-led News Corp. was preparing a buyout offer.
The couple allegedly made more than $8 million in illegal profit when the offer became public May 1 and sent shares of Dow Jones -- owner of the Wall Street Journal -- soaring.
The SEC complaint did not say how the couple became aware of the Murdoch bid. But attention soon focused on David K.P. Li, who sits on the Dow Jones board. Li, head of the Bank of East Asia and a prominent legislator, is a longtime business associate of Michael Leung, father of Charlotte Leung.
Li declined to comment for this story. He was quoted by the Wall Street Journal as saying, “I know Michael, and he is a friend, but I certainly did not talk to him about Dow Jones.” A Dow Jones spokesman said Friday that Li was not the subject of any internal inquiry.
The Wongs could not be reached for comment. According to the SEC complaint, the Wongs did not have enough to pay for the stocks, so Leung wired $3.1 million to his daughter and son-in-law’s account April 18.
There is no mention in the court documents of Li, who has had a long association with Leung. Leung is a director of Bank of East Asia in Canada, and the two men serve on the executive committee of the St. James Settlement charity group.
Insider stock trading is not uncommon in Hong Kong. An enforcement agency, the Insider Dealer Tribunal, is famously understaffed and ineffective at recovering the millions of dollars it levies in fines.
This month 11 members of a communications company were fined $3.4 million for insider trading, seven years after the violation was reported. Last year a member of a property investment company was forced to pay $4.3 million in fines -- also seven years after the insider trading came to light.
“They lack investigative resources and probably lack willpower from the government to bring prosecution,” said David Webb, a Hong Kong-based financial watchdog and website editor. “They know it to be wrong and illegal, but the point is if you don’t have strong enforcement of laws, then the effect of deterrent is diluted.”
Irene Wong, a spokeswoman for Hong Kong’s Security and Futures Commission, denied that officials were weak in enforcing insider information. She declined to comment on the Dow Jones inquiry but said the commission would cooperate fully with the SEC.
Li, born in London and schooled in Cambridge, was born into the family that founded Bank of East Asia in 1918. His influence as chairman of the bank and as a senior legislator in finance has led to dozens of other roles as patron of the arts and the board of Hong Kong’s chief English newspaper, the South China Morning Post. He and his company have also been significant donors in the campaign that successfully elected Donald Tsang as Hong Kong’s chief executive.
Li’s brother, Arthur Li, is a surgeon and secretary of education. An uncle, Simon Li, was the first Chinese to serve on the Court of Appeals in the former British colony. Cousin Andrew Li was Hong Kong’s first chief justice. And another uncle, Ronald Li, was formerly head of Hong Kong’s stock exchange before being convicted of accepting bribes.
“People will not believe that David Li would be involved in insider trading,” said So, the Chinese University of Hong Kong professor. “He’s too rich. And he won’t dare risk his own wealth and reputation.”