THE alarm bells had already been tinkling, but when a Hong Kong-based couple placed an order to sell $23m (£11.6m) of shares in Dow Jones, the American publishing group, the ringing rose to a peak.

The trade, on May 4 – just three days after the shares had rocketed following a leak that News Corporation, ultimate owner of The Sunday Times, had made a takeover bid for Dow Jones – led to a tip-off to the Securities and Exchange Commission (SEC).

Officials acted swiftly. Within four days, the American securities regulator had filed a lawsuit alleging that Kan King Wong and his wife, Charlotte Ka On Wong Leung, had engaged in insider trading and secured an injunction freezing $23m held in their bank accounts.

The Wong case (see panel on right) is just the SEC’s latest high-profile insider-trading charge as it battles to crack down on suspicious dealing in shares.

However, the case also highlights a worrying trend for the SEC, Britain’s Financial Services Authority (FSA) and regulators across the globe. More powerful technology and the globalisation of financial markets mean that insider trading can cross borders, time zones and exploit broader markets.

Nobody doubts that insider dealing has been rampant for years. But there are fears that it is soaring and becoming more difficult to detect. No wonder the SEC and the FSA, led by chief executive John Tiner, have made stamping out insider trading a top priority.

The frenzy of mergers and acquisitions, which has led to a record-breaking $2,000 billion worth of deals globally already this year, has created more opportunity for the unscrupulous and triggered concerns that insider trading has become a systemic problem.

Measuring insider trading is difficult. Ear-lier this year, an FSA study revealed that almost one in four takeover announcements in 2005 were preceded by evidence of possible insider dealing.

In America, the problem looks even worse. Although there are no official SEC figures, a study by Measuredmarkets for The New York Times found in the year to August 2006 that 41% of takeovers were preceded by abnormal share-trading activity.

More suspicious trades are being spotted. Possible insider-trading cases referred by the New York Stock Exchange to the SEC between January 1 and April 20 are running 30% higher than a year ago.

Legal experts believe this is a gross underestimate. The figures only cover trading in shares, but there is growing evidence that insiders are adopting complex strategies.

“Once you get beyond pure equities and into the realms of insider trading using derivatives and options it becomes much harder to track and to prove,” said Roger Best, head of regulatory enforcement at the law firm Clif-ford Chance.

Many suspect insider traders are using ingenious methods. A favourite tactic is to start a bid rumour. In recent months, shares in Next, ICI, Scottish & Newcastle and Rio Tinto have all surged on takeover rumours, which have come to nothing. Some regulators believe that insider traders are using false rumours to divert attention from other share deals.

Private-equity consortiums carrying out big deals have also raised concerns. This is partly because the leveraged deals need intricate financing from a host of backers, increasing the number of possible insiders.

In the past few years, the SEC has prosecuted between 40 and 45 cases annually. Many have been small. However, in recent months there has been a spate of larger cases. And more are expected.

One recent bust – involving bankers who worked for Morgan Stanley and UBS – was hailed as the biggest break-up of an insider-trading ring since the 1980s. Last week American prosecutors arrested Jennifer Wang, a former Morgan Stanley analyst, and her husband and charged them with alleged illegal share dealing based on information she stole while working for the bank.

The SEC is increasingly focusing on how information can be shared by people working at the big investment banks and powerful hedge funds. In doing so, it is adopting a similar strategy to the FSA.

Yet while the SEC has been prosecuting close to 50 cases a year, the FSA’s record has been less impressive. Since 2001, when it gained stronger powers, it has successfully brought just eight cases of misuse of information. The one notable scalp was Philippe Jabre, the former star hedge-fund manager at GLG, who was fined £750,000.

Critics snipe that the FSA needs to instil more fear in the City by adopting the aggressive tactics of the SEC, which routinely publicly parades suspected insider dealers in glinting handcuffs.

The FSA bridles at such suggestions. But it is taking action. It is spending £15m, its larg-est-ever technology investment, on Sabre 2, a state-of-the-art surveillance system. It is also looking at imposing bigger fines, tied to an individual’s wealth.

Even this may not be a deterrent. One UK trader said: “The worst that can happen here is a fine. This means an inside deal becomes a question not of jail, but of economics.”

The FSA may want to get tough, but it has yet to strike terror in the City.

COUPLE ACCUSED

KAN KING WONG and his wife Charlotte Ka On Wong Leung, the Hong Kong couple accused of insider trading by the Securities and Exchange Commission (SEC), were not known as active share traders.

But according to the SEC, on April 13 the couple started making a big bet on shares in Dow Jones, the American publishing group. Over 17 days, they used a Merrill Lynch account in Hong Kong to buy 415,000 shares worth $15m (£7.6m).

On May 1, news leaked that Rupert Murdoch’s News Corporation had made a $5 billion takeover bid for Dow Jones. The shares shot up 58%.

Three days later the couple placed an order to sell their entire holding, now worth $23m, which would have booked them a tidy $8.2m profit.

Whether the Wongs were just lucky or trading on inside information will become clearer on June 18 at a hearing in a Manhattan court. But the SEC suit also threatens to shine the spotlight on some of Hong Kong’s leading figures.

It alleges Michael Leung, father of Charlotte Ka On Wong Leung, sent $3.1m to the couple’s account on April 18 to help fund the share purchases. Leung, who is not a defendant in the SEC case, is an associate of Sir David Li, a leading Hong Kong banker and a Dow Jones director. Li denies disclosing any information about Dow Jones to anyone.

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