Video: Did WSJ editors know of Murdoch bid?

msnbc.com news services
updated 5/8/2007 1:51:32 PM ET 2007-05-08T17:51:32

Some Wall Street Journal editors knew that News Corp. was making a $5 billion bid for the paper’s parent, Dow Jones & Co., at least a week before the news broke elsewhere, but they did not publish it, the New York Times reported on Tuesday.

Also, the Securities and Exchange Commission Tuesday accused two Hong Kong residents of “widespread and unlawful trading activity” when they bought $15 million of Dow Jones & Co. stock ahead of the News Corp. bid.

The Times said that while no one has suggested that anyone at Dow Jones traded on the information, questions of who knew about the offer ahead of a formal announcement could become an issue for securities regulators looking into unusual trading in options to buy Dow Jones stock in advance of the news.

Several days after Murdoch submitted a letter to the Dow Jones board, he sent an e-mail message to the Journal’s top editor, Paul Steiger, marked “Personal and Confidential,” telling him of the bid, the Times reported citing unidentified sources at Dow Jones.

Murdoch offered his reassurances that he would uphold the editorial integrity of the Journal if he were successful, according to the Times.

The Times, citing people within Dow Jones, reported that Steiger felt bound by the “confidential” nature of his communications with Murdoch, and it weighed heavily on his decision not to publish a story. Several other editors were also aware of the offer, the paper said. A Dow Jones representative could not immediately be reached for comment.

Separately, the lawsuit in U.S. District Court in Manhattan named as defendants Kan King Wong and Charlotte Ka On Wong Leung, a married couple. It alleged they made “highly profitable and highly suspicious” stock purchases based on inside information between April 13 and April 30.

The lawsuit did not explain how the couple would have obtained inside information on the pending offer. There was no information on whether the couple has a lawyer in the United States. A message left with the SEC lawyer who filed the lawsuit was not immediately returned.

According to the lawsuit, Wong and his wife bought 415,000 shares of Dow Jones stock in the two weeks prior to the May 1 announcement that News Corp. had offered to buy Dow Jones.

The purchases occurred while the couple possessed material non-public information about the offer of News Corp. to acquire Dow Jones, the lawsuit said.

“In advance of the announcement, defendants engaged in widespread and unlawful trading activity,” the lawsuit said.

After the public announcement, the value of Dow Jones stock rose 58 percent, causing the couple’s Merrill Lynch & Co. account in Hong Kong to grow to $23 million, a net gain of $8.18 million.

The couple did not have enough money in their brokerage account to buy all the shares of Dow Jones stock on April 13 so $3.18 million was wired to their account five days later from the father of Charlotte, according to the lawsuit.

The lawsuit sought a court order requiring the couple to give up all profits and pay civil penalties.

Jeffrey Lerner, a spokesman for the New York attorney general, Andrew Cuomo, declined comment Tuesday on the allegations against the Wongs.

Federal and state authorities have said they are investigating suspicious options trading in Dow Jones stock prior to the announcement of News Corp.’s $5 billion bid for the financial news publisher.

A spokesman for Dow Jones, which publishes The Wall Street Journal, said Monday that it has received a subpoena from the New York attorney general’s office and a request for information from the Securities and Exchange Commission regarding options trading. Dow Jones will “cooperate fully” with the authorities, company spokesman Howard Hoffman said.

Trading surged in Dow Jones call options, which give purchasers the right to buy shares of the corresponding stock at a specified price by a certain date — usually reflecting a bet by buyers that the stock will rise in value. The trading pattern suggests that some investors may have known about Murdoch’s offer before it was publicly disclosed.

More than 10,000 call options on Dow Jones stock were traded in late April, compared with some 7,000 during all of the January-March quarter.

Murdoch’s bid has been opposed by Dow Jones’ controlling shareholders, the Bancroft family, but the family is not united in its stance.

A family representative indicated that Bancroft family members representing 52 percent of the company’s shareholder vote would oppose the bid — not quite all of the family’s voting power of 64 percent, the company said.

On Sunday, the bid ran into more resistance as Jim Ottaway Jr., a former Dow Jones board member and large company shareholder, said he strongly opposes it. In a statement posted on the Journal’s Web site, Ottaway said a Murdoch takeover would bring the “loss of the independence and integrity of a leading national editorial voice.”

The Associated Press and Reuters contributed to this report.

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