Hong Kong Cabinet Member Quits

Sources: Financial Times, Bloomberg

After paying an $8.1 million penalty to the US Securities and Exchange Commission (SEC), Hong Kong lawmaker and cabinet member David Li has quit the cabinet. Li was the chairman of the Bank of East Asia, Ltd., and represented the banking sector in the Hong Kong parliament. Li has finally bowed to the mounting pressure to resign that begun when investigation occurred. Li has represented the banking sector for over twenty years.

Li found himself in hot water when he allegedly provided insider tip information about the possible NewsCorp takeover of Dow Jones. At the time of the alleged tip, there was still as yet no announcement. Li was a former director of Dow Jones, and has since been investigated and charged by the SEC. Li settled the case for $8.1 million, neither admitting or denying fault.

Even though Li has resigned the cabinet, he may not have escaped all sanctions. As a bank director, he is regulated by the Hong Kong Monetary Authority, and may face sanctions from the HKMA. Hong Kong requires all bank directors to pass a test that measures “reputation and character, knowledge and experience, and past record, if any, of noncompliance or criminal activity. The HKMA is currently investigating Li.

Despite the pressure, Li is promising to run for another term in the HK parliament.

Discussion Question: How should the HKMA view the settlement between the SEC and Mr. Li in its evaluation of Mr. Li's character? Furthermore, while he claims to be running for another term in the legislature, how can he overcome this dark cloud?