David Li must go for the sake of integrity, Mr Tsang

PUBLISHED : Saturday, 16 February, 2008, 12:00am
UPDATED : Saturday, 16 February, 2008, 12:00am

Dear Donald Tsang,

I wish you a happy Lunar New Year.

However, it must be difficult to be happy when a dear friend is in trouble, especially when he is someone who mustered votes and money for you to win the Chief Executive election last summer. It is even worse when you have to show him the door.

That is perhaps why, 10 days after David Li Kwok-po paid US$8 million to settle the insider trading case with the Securities and Exchange Commission in the United States, you have yet to ask him to leave the Executive Council and the important Banking Advisory Committee.

For the good of yourself and Hong Kong, Mr Li must go.

People may have been telling you that the settlement agreement Mr Li has entered into is very common in the US. Indeed, you are not hearing much noise about this case from the local media. It doesn't appear to be a big deal.

The truth is, Hong Kong is too small a place for the local media to ask for the resignation of a politically and financially well-connected top gun like Mr Li. (After all, they have had enough pictures purported to be of actresses involved in sex acts to fill the front pages over the past two weeks.)

But the fact remains that the so-called standard settlement arrangement has brought into doubt not just the integrity of Mr Li but also that of the Hong Kong leadership, as well as your promise to build the city into an international financial centre.

In its court filing, the SEC alleges that Mr Li, a Dow Jones board member at the time, tipped off his close friend, Michael Leung Kai-hung, of the then-secret buyout offer by News Corp only a day after he was informed by the company counsel general. Mr Leung managed to buy the stock low and sell high.

Mr Li pledged to fight it out in court when the case first became public last July. Now the investing community and the public are hearing that he has entered into a settlement 'without admitting or denying the allegations'.

Any fair-minded person will ask why Mr Li has agreed to settle at such a heavy cost to his pocket and to his reputation if his conscience is clear. But what is important is not the answer to that question but the fact that there is a question at all.

The Executive Council, being the top decision-making body where highly sensitive market information is circulated, allows no room for doubt about any of its members' integrity. Yet, Mr Li's integrity is now in doubt.

As Hong Kong strives to become an international financial centre, this is particularly damaging. And, as someone who has listed 'the strengthening of corporate governance' as one of the achievements in his campaign profile, you must know this.

In last November's speech, you said: 'It is our firm belief that only sustained development of the financial services must go hand in hand with effective corporate governance.'

You also promised 'to establish and maintain a fair, transparent and orderly market at the macro level; and to provide a sound institutional framework to encourage good corporate governance at the micro level'.

Would anyone believe in those promises if your top lieutenants include a key banker who has been implicated in an insider trading case?

This is not a question that will be raised only once and then forgotten. Our competitors, who have been upset with the loss of mega mainland public offerings to Hong Kong, are more than happy to give it a continuous spin.

I am sure you see it as no coincidence that the SEC has emphasised both in the press release and court filing that Mr Li is a member of Hong Kong's Executive Council and Legislative Council.

Neither is it a coincidence that several overseas media organisations have cast Mr Li's case as 'evidence' of the Hong Kong market operating on guanxi and insider knowledge.

The allegations come amid an increasingly challenging environment where our stock market is being 'infiltrated' more and more by mainland corporations, investors and the culture that comes with them.

A phone call to our regulators will tell you that most of the major mergers and acquisitions of mainland corporations are preceded by significant share price movement.

Do you want to tell the world, the mainland players and our frontline regulators that Hong Kong has zero tolerance of insider trading, or send the opposite message by keeping your friend on board?

This is not an easy decision. Neither is it easy for me to write this letter. On the personal side, Mr Li has provided me with invaluable advice on my masteral thesis. At the same time, he is an independent non-executive director of the owner of this newspaper.

But he has to go.

Yours sincerely.