|June 11, 2002|
1. Recommendation Issued
The Securities and Exchange Surveillance Commission (SESC) issued today a recommendation that the Prime Minister and the Commissioner of the Financial Services Agency (FSA) take administrative disciplinary action and other appropriate measures pursuant to Paragraph 1 of Article 20 of the FSA Establishment Act based upon the results of the inspection of Cosmo Securities Co., Ltd. (hereinafter referred to as ''the company'') (located in Chuo-ku, Osaka; Tomoaki Murakami the president and a managing director; with equity capital of 32.4 billion yen; staffed with approximately 1,000 employees including directors) that ascertained the following facts constituting violations of laws and regulations by the company and its employee.
2. Facts Ascertained
(1) Act of making representation of a misleading statement on any material matter in connection with the sale or purchase of, or any other form of transaction in, a security
The company offered from September 1999 to April 2000 a number of specific issues of corporate bonds with a clause to exchange them for shares of another company different from the bond issuer company, or exchangeable bonds as they are often called (hereinafter referred to as ''the EB's''), of which the underlying share prices declined in the stock market after the respective EB's pricing dates, and in the bond offering periods, came to a level such as substantially lower than the exercise prices of the EB's.
Under these circumstances, the company made representation of a misleading statement on a material matter in soliciting customers for the EB's, through the act of neglecting to provide an adequate explanation of how the current market prices of the underlying shares would affect a reasonable investment decision for the customers, notwithstanding the above mentioned extremely unfavorable pricing conditions of the EB's that made the expected investment results that could be obtained from purchasing the EB's lower than those of the direct investment in buying the underlying stocks individually.
The above act is acknowledged to fall under the ''act of making representation of a misleading statement on any material matter in connection with the sale or purchase of, or any other form of transaction in, a security'' provided for in Item (1), Article 4 of the Ordinance of Cabinet Office Concerning Regulation, etc. of Conducts of Securities Company (as it used to be before the previous amendment to this article by the Ordinance of the Prime Minister's Office No. 65 of 2000) based upon Item 9, Paragraph 1 of Article 42 under the Securities and Exchange Law.
(2) Conclusion of a contract for discretionary trading account transactions
A sales representative of the asset advisory department at the company's head office concluded from July 2, 2002, to February 22, 2002, with a customer many times in connection with the acceptance of orders for the sale or purchase of stocks, a contract that allowed the employee to make a decision, without obtaining the customer's consent each time such transaction was made, as to the distinction, whether to sell or purchase, selection of the stocks, number of the stocks to be bought or sold, or price, and actually accepted orders and executed them between July 4, 2001, and February 22, 2002.
The employee's act of concluding the above contract is acknowledged to fall under the ''act of concluding a discretionary trading account transaction contract'' prescribed in Item (5), Paragraph 1 of Article 42 under the Securities and Exchange Law.
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