The Securities and Exchange Commission filed a complaint yesterday against a Hong Kong couple accusing them of "highly profitable and highly suspicious" trading of Dow Jones stock ahead of the announcement last week that the News Corp. had offered $60 a share for the company.
Immediately after the news broke last Tuesday, shares of Dow Jones jumped 58 percent, creating hefty profits on paper for anyone who owned the stock.
The SEC and the New York state attorney general are also looking into suspiciously active trading in options to buy Dow Jones stock in the days before the news broke. The complaint filed Tuesday was the first legal action related to trading in shares or options of Dow Jones.
According to the complaint, Kan King Wong and his wife, Charlotte Ka On Wong Leung, "engaged in widespread and unlawful trading activity" and would make $8.2 million if they sold their stock now. The couple jointly own a Merrill Lynch account in Hong Kong that they used to purchase 415,000 shares of Dow Jones during the two weeks before the News Corp.'s offer was made public, the complaint said.
Before CNBC reported on the morning of May 1 that the News Corp. was offering to buy Dow Jones, which owns The Wall Street Journal among other news outlets, the stock was worth about $37 a share. But as soon as the report aired, shares jumped by more than $20.
Rupert Murdoch, the News Corp.'s chairman, had notified Dow Jones that he wanted to buy the company two weeks earlier. As a result, people inside and outside the two companies knew of the offer.
The high levels of options trading before the offer was made public raised the suspicions of the SEC and New York state officials. Both Dow Jones and the News Corp. have said that they received a subpoena from the New York attorney general and an inquiry from the SEC.
In its complaint yesterday, the SEC asks that the Hong Kong couple forfeit all profits "realized from the unlawful trading alleged."