RPT-UPDATE 4-SEC charges Hong Kong couple over Dow Jones trades
(Repeats story sent on May 8 with no changes to text)
(Adds Merrill Lynch comment)
By Martha Graybow
NEW YORK, May 8 (Reuters) - U.S. regulators accused on Tuesday a husband and wife in Hong Kong of insider trading stemming from their purchases of Dow Jones & Co. Inc. DJ.N shares prior to News Corp.'s NWSa.N $5 billion takeover bid.
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. MER.N 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.
SHARE JUMP
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. (Additional reporting by Robert MacMillan in New York, Tony Munroe in Hong Kong and John Poirier in Washington)
