Penn State University - Smeal College of Business
PSU search
Student Exchange Smeal site map Contact us Accounting faculty directory

Steven Huddart picture
Should I exercise my stock options?
Case Studies
Stock compensation glossary
Compensation links
Securities law links
Tax links
Office hours and location
Facts About The School
Home | Previous | Next | Huddart Site Map

USA Today, May, 2007

$15M Dow Jones stock buy raises flags ; SEC gets restraining order to freeze couple's assets

By Matt Krantz, USA TODAY

Regulators on Tuesday validated suspicions something was amiss in trading ahead of News Corp.'s $5billion bid last week for Dow Jones.

The Securities and Exchange Commission filed a temporary restraining order freezing the assets of two Hong Kong residents who allegedly profited $8.2 million from well-timed trades before and after the May 1 announcement that Rupert Murdoch's News Corp. had offered to buy the publisher of The Wall Street Journal. According to the SEC's complaint, a married couple named Kan King Wong and Charlotte Ka On Wong Leung conducted "widespread and unlawful trading activity" when they started buying Dow Jones stock around $36 a share a little more than two weeks before Murdoch's $60-a- share offer became public.

The SEC did not reveal how it thinks the couple were tipped off. Cheryl Scarboro, associate director in the SEC's division of enforcement, would not comment on details of the ongoing investigation, and said charges will follow. A hearing is set for June 18.

The SEC says the trades set off warning bells due to:

*Timing. The couple bought 415,000 shares from April 13 to April 30, the day before the buyout offer was announced. The complaint says before that, they had never bought Dow Jones stock through the Merrill Lynch account used for the purchases. They told Merrill to sell all 415,000 shares on May 4, the SEC says.

*Magnitude. The $15.0 million in stock purchases were so large, the couple didn't have enough cash to cover them. Charlotte Ka On Wong Leung's father wired in $3.2 million, and an additional $4.0 million was wired from J.P. Morgan International Bank in Brussels. They also took out $4.8 million in loans.

*Unusual nature. The stock purchase was large relative to the $606,600 in stock in the couple's Merrill account, according to the complaint. The SEC says the only U.S. stock in the account was a $53,750 stake in Intel. A majority of the portfolio was invested in bonds, typically more conservative than stocks.

The couple's lawyers were not known Tuesday evening, and the couple could not be reached. Dow Jones says it is cooperating with regulators. News Corp. did not return calls for comment.

The fact the SEC moved so quickly on the freeze shows it is confident that it has a solid case, says Phillip Stern at law firm Neal Gerber Eisenberg.

There's still a question whether others were involved, since there was also unusual option activity, says Jon Najarian of The SEC is still investigating, Scarboro says.

And the case shows the downside of what a booming deal market can bring, says Steven Huddart, professor at Penn State: "When there's that kind of (deal) activity, more people on the outside are in the know."

Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
Home | Previous | Next | Huddart Site Map
was last updated on Tue, Aug 21, 2018.
Today is Thu, Dec 3, 2020.

Unless otherwise noted, all material is:
Copyright ©1995-2018 Steven Huddart. All rights reserved.