Nomura claims Tokyo directors 'siphoned funds'

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The Independent Online
Nomura Securities, the giant Japanese stockbroking company, yesterday added its name to the ever lengthening list of financial scandals by announcing that it suspected two of its directors in Tokyo had been conducting unauthorised trades to the benefit of a client's account.

There were reports in Tokyo yesterday that millions of yen had been deposited in the account of the client, which allegedly was linked with a sokaiya - a general term for a racketeering operation.

The announcement was made after the Tokyo market had closed, but the shock of the scandal was felt in London where shares in Nomura, by far the biggest broker in the world, plunged by 9 per cent during the course of the day.

Nomura levelled the accusations against the two directors, who have not been named, after concluding an internal investigation into the transactions. Japanese regulatory bodies have also been conducting their own investigations for months.

The company refused to give out details of the directors, and it is unclear whether they have been suspended, with some reports from Japan saying they were still in their posts. It is known, however, that one of the directors is from Nomura's general affairs department and the other is responsible for stock transactions.

Reporters in Japan have been pursuing rumours about a financial scandal at Nomura for several months. Recent reports have stated that the Securities and Exchange Surveillance Commission, one of the Japanese regulatory bodies, had begun its investigation after suspecting Nomura had reimbursed huge sums of money to a Tokyo-based investor to make up for losses incurred through futures trading in Singapore.

Blackmailing of companies by sokaiya has been going on for years. It became so endemic in the 1980s when sokaiya threatened to disrupt annual general meetings that Japanese companies were forced to take evasive action and agreed to hold all their meetings on the same day to reduce the possibility of disruption at their agms.

Atsushi Saito, a vice-president at Nomura in Tokyo, could not confirm yesterday that there was involvement by sokaiya.

Speaking in Tokyo, he said that the two directors appeared to have transferred profits raised from Nomura's own accounts to a customer's account which had been set up in early 1993. These transactions, the size of which was not disclosed, had been "discretionary", made without approval and against the Securities and Exchange Law.

Nomura began its own investigation at the start of the year and passed on the findings to the Japanese regulators. Not until the regulators have completed their examination of the transactions will further details of the case be released, Nomura said.

Nomura said its internal investigation "appears to indicate that, quite regrettably, there is a possibility that some of the transactions investigated did not fully comply with our code of conduct". As such, the transactions could be considered discretionary and prohibited by law.

"We found three transactions that were clearly suspicious," Mr Saito said.

This is the second time that Nomura has grabbed the headlines for the wrong reasons. The announcement yesterday comes soon after market manipulation allegations against its London-based Nomura International operation by Australian regulators.

The Australian Securities Commission (ASC) is accusing Nomura International in the Australian Federal Court of several charges of market manipulation related to trading activities in March 1996. Nomura International is denying any wrongdoing in connection with the stock index arbitrage trades in Sydney that involved simultaneous buying and selling of shares and futures contracts.

"The transactions referred to in the ASC allegations were legitimate stock index arbitrage transactions and took place in March 1996. They did not, or will not, have any adverse impact on Nomura's financial performance," Nomura International said in London.

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