|April 23, 2002|
|Recommendation (Sakura Friend Securities Co., Ltd.)|
Today the Securities and Exchange Surveillance Commission ("SESC"), as a result of the inspection of Sakura Friend Securities Co., Ltd. ("Sakura Friend") that found violations of laws and regulations committed by Sakura Friend and its employees, issued a recommendation that the Prime Minister and the Commissioner of the Financial Services Agency ("FSA") take administrative and other appropriate actions based upon Paragraph 1 of Article 20 of the FSA Establishment Act.
Sakura Friend, from the viewpoint of preventing unfair trade, has set a policy of controlling undisclosed corporate information strictly in accordance with its in-house rules in cases it has come to obtain such information. It also reformed its organization to control such information particularly with respect to a listed company's purchase of share certificates representing the company's own shares. The reorganization that Sakura Friend implemented, however, has become a mere name that resulted in the failure to control undisclosed corporate information in a strict manner. Its internal reporting system has also not been fully implemented with respect to such information. Furthermore, its proprietary trading business has never been checked in the light of controlling such undisclosed corporate information.
Sakura Friend has thus been conducting its business in such state recognized as having an insufficient internal control of undisclosed corporate information from the viewpoint of preventing unfair trade. This state has been demonstrated by some cases in which one of the traders at its Trading Department, who is in charge of the company's proprietary trading business, accepted the orders from a listed company to purchase its own shares to retire them, despite the circumstances where Sakura Friend, through the act of accepting and executing the orders placed by the listed company, came to be aware of such undisclosed material information as the substance of each specific decision made by the company to purchase its own shares for their retirement. The state of Sakura Friend's insufficient internal control has also been recognized in one particular case which happened on July 12, 2000, where the same trader, while knowing the information pertaining to the same listed company, executed an order to purchase the company's shares for Sakura Friend's own account.
(1) A senior sales representative at the Sales Department of the Shizuoka branch concluded on many occasions with a number of customers those contracts which gave him discretionary power to make decisions concerning prices in stock transactions without the consent from the customers in each individual transaction, and actually received orders and conducted transactions from August 16 to December 11, 2001.
(2) A sales representative at the Numazu Plaza branch concluded on many occasions with a number of customers those contracts which gave him discretionary power to make decisions concerning prices in stock transactions without the consent from the customers in each individual transaction, and actually received orders and conducted transactions from April 25 to December 28, 2001.
A commission sales representative at the Ikebukuro
branch conducted trading in stocks on his own judgement on many
occasions by using a customer's account from September 19, 1997
to November 22, 2001.
The aforementioned act of the employee falls under "Act of making the sale or purchase of any security by an officer or employee of a securities company for the sole purpose of seeking profits out of speculation" prescribed under Item (5) of Article 4 of the Ordinance of Cabinet Office Concerning Regulation of Conducts of Securities Company based upon Item (9), Paragraph 1 of Article 42 of the Securities and Exchange Law.
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