A Hong Kong Aristocrat’s Link to Insider Trading

The leaked information that led to charges of insider trading in options after Rupert Murdoch’s audacious bid for the Dow Jones Company, almost certainly came from Hong Kong.

Insider trading is a way of life in Hong Kong so it’s no surprise that the ham-handed attempt to cash in by a Hong Kong couple was quickly uncovered by the US Securities and Exchange Commission, which does not take kindly to such activities. These things are rarely looked at in Hong Kong. Although for 30 years there has been an Insider Dealing Tribunal, established to investigate allegations of insider trading, it is a toothless body that has achieved almost nothing. Insider trading itself is still not illegal in Hong Kong

So Dow Jones may be deeply regretting the embarrassment caused today by the decision made back in the 1980s to elect David (now Sir David) Li to its board. According to the online edition of the Wall Street Journal, Li, chairman and chief executive of the Bank of East Asia Ltd, has been linked to the insider trading probe surrounding Murdoch’s $5 billion bid for Dow Jones. Peter Kann, then the editor of the Hong Kong-based Asian Wall Street Journal and later chief executive officer of Dow Jones, got to know Li when he was a member of the board of the South China Morning Post, in which Dow Jones had a minority interest until (ironically under these circumstances) Rupert Murdoch bought the SCMP.

Li denies he was the source of the leak that led to huge share and options trades through the Hong Kong office of Merrill Lynch prior to the public announcement of the Murdoch bid. Certainly Li himself is so rich that he would never need to contemplate such actions. They were done by a couple, Wong Kan-king and Wong Ka-on, the latter the daughter of Leung Kai-hung, a friend and business associate of Li’s. The father was implicated by the SEC in loaning the money for the purchases, linking him to the deals and the source of information.

However, Li is one of the great schmoozers of all time, a fact reflected in his ability to ride several horses at once. He is intensely pro-British, was born in the UK, sent his sons to the prestigious Winchester school, and runs a Friends of Cambridge University society. But he is also trusted enough as a “patriotic businessman” by China to be put on the Basic Law Drafting Committee which designed Hong Kong’s constitution and most recently was in charge of Donald Tsang’s campaign to be rubber stamped for another term as Chief Executive.

Li also comes from one of the most powerful families in Hong Kong. He has represented the banking community on the Legislative Council for many years. His brother is education minister and his cousin, the chief justice of the court of final appeal. He is on innumerable boards and committees.

Li combines personal charm with an ability to tell others what they want to hear. In this case he may have inadvertently revealed the Dow Jones offer. In any event, whoever directly or indirectly tipped off the couple could scarcely have guessed how crude would be the subsequent action. Anyone with the slightest knowledge of US securities markets would have known the necessity of covering tracks by buying through numerous brokers and using companies in impenetrable jurisdictions. Instead, this couple appears to have been caught red-handed within a few days of the bid going public. Li is going to have to face some difficult questions.

So too will Hong Kong. Although the territory claims financial sophistication, it is a paradise for inside traders from the big families that dominate much of the economy and have close links to a bureaucracy notorious for its kid-gloves approach to the local oligopolies which reward them with cushy post-administration jobs.

Li is perhaps unfortunate to be caught in this particular mess. As one of the most prominent members of Hong Kong’s old-money set, he is known more for his diplomatic skills than greed or ruthlessness. But he is perhaps finding out that being on the board of such a prominent US company carries more onerous responsibilities than board seats in clubby, incestuous Hong Kong where insider tipping of deals is the norm. And Dow Jones is finding that it needs to take more care in choosing the international decoration for its board.