Billionaire on The Griddle

By William Stewart/Hong Kong

It was 6 a.m. on the second day of the new year, and Ronald Li, reputed to be the third richest man in Hong Kong, was still sleeping, when four officers of the government's special anticorruption unit suddenly turned up at his home on the colony's fashionable Shouson Hill. After rousing Li, the former chairman of the Stock Exchange of Hong Kong, the officers thoroughly searched his luxurious three-story house. Then they led away the 58-year-old billionaire, who had hurriedly donned a turtleneck sweater and sports jacket. At the same time, other government squads were arresting two of Li's closest associates: Jeffrey Sun, former chief executive of the stock exchange, and Donald Tsang, who heads the exchange department in charge of new stock listings. The three men were taken to the operations headquarters of the government's Independent Commission Against Corruption, held for ten hours and released on bail totaling nearly $2 million. Though no charges were filed against them, their travel documents were confiscated.

The arrests created an instant sensation in the highly charged financial community of Hong Kong. Not only did the authorities collar one of the colony's most celebrated tycoons, they also added fuel to the controversy that has engulfed the Hong Kong Stock Exchange ever since Li shut it down for four days during the global financial crash last October. At a stormy news ! conference held when trading resumed, the contentious Li argued that he had given investors a chance to calm down. But his action had the opposite effect: it created a pent-up pressure to sell. After the exchange reopened, the Hang Seng stock index plunged by 33% in a single day, to 2241.69.

Critics suspected that the exchange was closed in a desperate effort to minimize members' losses. If that is true, the strategy did not work. Had the government not jumped in with $512 million in emergency loans, 39 of the 250 stock-index futures dealers might have failed. A brokerage that Li controlled took a terrible beating during the crash. As stock values plummeted, Li's personal fortune, estimated at $2 billion, may have dropped to $1.3 billion.

Though attention has focused on Li's closing of the exchange, that seems to have had nothing to do with his arrest. Officials say his detention resulted from a probe, launched before the crash, of the exchange's operations. The Hong Kong market, which has been almost unregulated, is known for its anything-goes philosophy. Insider trading is not discouraged, much less prosecuted, and there are few financial disclosure requirements for companies that list shares on the exchange.

Li, who inherited a family business that included shipping interests, multiplied his money through astute investments in stocks and real estate around the world. He helped set up the Far East Stock Exchange in 1969 and then merged it with three similar operations in 1986 to form the Hong Kong Exchange. Critics say Li has run the operation as a club for a small group of Hong Kong businessmen. Reports have circulated, for example, that preferred investors have been able to buy new issues at artificially low prices.

The government has made no such accusations against Li and has not said whether he will face any charges at all. But the authorities have moved to overhaul the exchange's management. Li had given up the title of chairman in December because of a rule limiting him to two consecutive one-year terms. Now he and his closest associates, including Sun and Tsang, have been excluded from the exchange's reorganized governing committee. Some Hong Kong traders were concerned about how the market would react to Li's arrest. Investors, however, seemed to applaud the government's crackdown. Last week the Hang Seng index rose 6.5%, to 2452.52, though it still stood nearly 40% below the peak it had reached before the crash.