Tip: When Engaging in Insider Trading, Be Discreet!

Evidently a Hong Kong couple thought the rest of the world was asleep. Listen to what they did before their brokerage accounts were frozen, preventing them from pocketing an estimated $8.2 million. Tell me if you think their broker, Merrill Lynch (MER), might catch on that something was a bit suspicious.

In early April the couple’s account was worth $1.2 million, consisting of mostly fixed income and commodity investments, along with a small position in Intel (INTC) stock. All of the sudden, they wire $10 million into their account and borrow $5 million on margin to buy 415,000 shares of Dow Jones (DJ) for an average price of $35.14 per share.

Just days later Dow Jones gets a $60 cash offer from News Corp (NWS) and the couple tries to sell all $23 million worth, netting a profit of $8 million. How on earth do people really think Merrill Lynch isn’t going to notice this? Regulators often do investigations after M&A deals are announced to try and uncover illegal activity, but this case was handed to them on a silver platter.

It will be interesting to see what happens to these people. I hope they get the book thrown at them. Perhaps a copy of the insider trading laws would be a good start.

Full Disclosure: Long Intel $10 2009 LEAPs at the time of writing

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