PCCW Ltd shares fell in Hong Kong trading after people familiar with the matter said police began probing Chairman Richard Li's failed bid last year to buy out the city's biggest phone company.

PCCW declined 1.9 percent to HK$2.09 in early trade yesterday, the worst performer on the 201-member Hang Seng Composite Index, which climbed 2.2 percent. The benchmark Hang Seng Index gained 2.4 percent. PCCW closed at HK$2.12 yesterday.

Offices of at least one of Li's companies were searched on Feb 10, the people said. Police also searched the offices of Fortis Insurance Co (Asia), a Hong Kong insurer formerly controlled by Li's Pacific Century Regional Developments Ltd (PCRD), the people said. "It would be inappropriate to comment on this matter," PCCW said yesterday. It didn't say if its offices were visited by police.

"Nobody knows what else could be going on when the investigation continues," said Marvin Lo, an analyst at Daiwa Institute of Research Ltd in Hong Kong. "This could have uncertainties and put price pressure on the stock."

In April, Hong Kong's Securities and Futures Commission won a court ruling to block Li's $2.1 billion buyout of PCCW after the regulator alleged that hundreds of people, including Fortis Asia agents, were given shares in the phone carrier to boost support for the deal. According to the court ruling last year, the February 2009 shareholder ballot was manipulated and didn't reflect the interests of PCCW minority investors.

Search warrants

"We will cooperate fully with any investigation and wish to see it resolved as soon as practically possible," Martin Rogers, a lawyer for Li at Clifford Chance LLP in Hong Kong, said in an e-mailed statement. "We do not believe Richard Li is the target of any investigation or that any senior management of PCRD or PCCW has committed any wrongdoing." Police had search warrants for Li's residences as of Feb 10, according to the people. Commission spokesman Jonathan Li declined to comment yesterday.

No charges have been filed and the investigation is ongoing, one of the people familiar with the matter said. Li hasn't been accused of any wrongdoing.

The splitting and distribution of stock ahead of shareholder votes, while legal, may undermine the spirit of the law and amount to manipulation, Judges Anthony Rogers, Johnson Lam and Aarif Barma said in their May 12 written judgment for their April 22 decision to block the PCCW buyout.