Thursday, July 19, 2007

Business: Hong Kong Corruption Tars Dow Jones

Hong Kong Corruption Tars Dow Jones
Shu-Ching Jean Chen, 07.19.07, 3:10 AM ET


David Kwok-po Li, Hong Kong’s top native-born banker and the scion of its most storied business dynasty, has long embodied the cozy business and political culture that he and his family helped foster over the decades in this former British colony.
The sort of backroom wheeling and dealing prevalent among Hong Kong’s upper crust may have gotten the 68-year-old head of Bank of East Asia in trouble with the U.S. Securities and Exchange Commission, which suspects him of playing a part in an insider-trading sideshow to the takeover of Dow Jones by Rupert Murdoch.
Li, who is a member of Dow Jones’ board, has received a notice from the SEC indicating its investigators intend to recommend that the agency file a civil lawsuit against him in connection with the case of a Hong Kong couple, Charlotte Wong Leung Ka-On and her husband Wong Kan-King, who allegedly pocketed an $8.2 million gain through trading in Dow Jones shares in the days before and after news of the $5 billion bid by Murdoch’s News Corp. became public May 1. (See: “Hong Kong Hanky Panky In Dow Jones”)
The link from the couple to Li can be traced through his close friend Michael Leung, who is the father of Charlotte Wong.
``I have broken no laws and deny the apparent allegations being made by the staff of the Commission,'' Li said Thursday in a statement issued by Bank of East Asia, the city’s largest local bank.
When the SEC initiated its probe in May, Li told The Wall Street Journal, "I did not disclose to anyone, not even my wife, any information about Dow Jones."
SEC action could force Li to step down from Dow Jones' board, which he has served on since 1993 as its first non-American director.
That the figurehead of Hong Kong’s banking industry, who has represented it in Hong Kong’s de-facto parliament for more than a decade, might face charges of insider trading in the U.S. is arguably a reflection of the weak regulatory regime in Asia’s top financial capital. The accusations do not come as a surprise to many longtime observers.
Insider trading has run rampant in Hong Kong, as evidenced by the sharp swings of many stocks ahead of breaking news. Investigations usually take years to conclude and charges are seldom levied. Insider trading only became a criminal offense in 2003 and no one has been convicted under the new law.
Li is a highly regarded speaker on varied subjects relating to Hong Kong’s future and the campaign manager of the city’s top politician, chief executive Donald Tsang, he is active both in Hong Kong’s social and political scenes.
His stature has been amplified by the accomplishments of close relatives — his brother Arthur K.C. Li served as Hong Kong’s education minister till the Cabinet was reshuffled this summer and cousin Andrew Kwok-nang Li is the chief justice of Hong Kong’s highest court.
The Li clan built its fortune on rice trading and shipping more than a century ago, and in 1918 founded the city’s first local bank, Bank of East Asia. The bank is among the most aggressive and perhaps the most successful local bank in the mainland market; its success there has allowed Li to entertain the idea of a listing in Shanghai, which would be the first nonlocal offering on the exchange.
The London-born Li is among the rare few of Hong Kong billionaires who went so far as to renounce British citizenship to prove his patriotic credentials and qualify for an appointment in 2005 as a Cabinet member at the Executive Council. That, however, did not require him to give up the knighthood conferred on him in 2005 by Britain for his contributions to British education.
In May, he topped the list to receive Hong Kong’s highest government honor, the Grand Bauhinia Medal, for his political and financial contributions. It was an award meant to cap his political career as one of Hong Kong’s longest-serving legislators since 1985, a career that may now be tarnished by the alleged passing of an illicit stock tip.

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