Hong Kong's securities regulator is seeking a court order to freeze assets of China Forestry Holdings Co. Chief Executive Li Hanchun, who sold a stake in the company just two weeks before trading in its shares was halted and possible accounting irregularities were disclosed.

The Securities and Futures Commission is also applying for a High Court order restraining Mr. Li from dealing in China Forestry's shares "whilst in possession of unpublished information about accounting irregularities in the company," according to a court document filed Monday.

The latest move underscores the regulator's efforts to fight market misconduct following several high-profile criminal prosecutions of insider-dealing activity in recent years.

China Forestry, which was listed in December 2009 and counts private-equity firm Carlyle Group LLC as a major shareholder, said Jan. 13 that Mr. Li had sold 119 million of the company's shares at 3.35 Hong Kong dollars (43 U.S. cents) each in a placement handled by Standard Chartered PLC, raising HK$398.7 million (US$51.2 million). With the transaction, Mr. Li's stake in the company fell to 2.46% from 3.9%.

Trading in the timber-harvesting company's shares was halted Jan. 26 after its auditors, KPMG LLP, found "possible irregularities" in its finances during its 2010 audit. China Forestry launched an inquiry and said its shares would remain suspended during the probe. The stock fell 18% to HK$2.95 a share between the announcement of Mr. Li's share sale and the trading suspension.

The SFC, which declined to comment on the case, is seeking an injunction prohibiting Mr. Li from disposing of assets in Hong Kong that amount to HK$398 million, about the same as his proceeds from his January share sale.

The injunction targets a UBS AG bank account in Hong Kong with a balance of HK$394 million that is held by a company wholly owned by Mr. Li. A High Court judge is scheduled to hear the SFC's case Friday.

China Forestry, with a market capitalization of HK$9.03 billion, is controlled by its chairman, Li Kwok Cheong, who owns a 53.3% stake, according to the Hong Kong stock exchange. Li Kwok Cheong and Li Hanchun co-founded the company.

China Forestry is one of several Chinese companies in which U.S.-based Carlyle invested ahead of their initial public offerings.

According to China Forestry's listing prospectus, Carlyle first bought a 12.5% stake in the company for about US$40 million in 2008. In June 2009, Carlyle bought an additional stake of nearly 4% for about US$15 million, the prospectus said.

Carlyle's stake in China Forestry decreased as a result of the company's IPO. According to the Hong Kong stock exchange, Carlyle's stake in China Forestry now is about 11%. Carlyle, Li Hanchun and China Forestry couldn't be reached for comment.

The SFC has overseen six successful insider-dealing prosecutions leading to 11 convictions in recent years, and has been active in tackling market misconduct.

In September 2009, the SFC won a landmark court ruling when a judge sentenced former Morgan Stanley banker Du Jun to seven years in prison for insider dealing—the maximum sentence. At the time, it was one of the most severe sentences handed down by any court in the world for insider dealing.