(Provisional Translation)
November 2, 2012
Securities and Exchange Surveillance Commission
Pursuant to Article 20(1) of the Act for Establishment of the Financial Services Agency (FSA), on November 2, 2012, the Securities and Exchange Surveillance Commission (SESC) made a recommendation that the Prime Minister and the Commissioner of FSA shall issue an administrative monetary penalty payment order against Japan Advisory LLC (hereinafter referred to as the “Company”). This recommendation is based on the findings of the investigation of insider trading by the Company, whereby the following violations of laws and ordinances were identified.
Whereas the Company was registered by the Prime Minister to engage in investment advisory and agency business (registration rescinded on June 29, 2012), the Company was recognized to have been substantially engaged in managing the investments of customer assets without being registered as an investment management business. Whereas the Company was substantially engaged in managing two hedge funds domiciled in a foreign country, on July 5, 2011, an employee of the Company involved in managing the said hedge funds received information from Employee A of a securities company negotiating a securities underwriting agreement with Elpida Memory, Inc. indicating that a decision had been made by the executive decision-making body of Elpida Memory to launch a public offering of stocks and convertible bonds. (Whereas this information had been gained by Employee A in the course of his/her duties and through Employee B of the same securities company who was informed of the negotiations, the said employee of the Company became aware of the information primarily when the said employee and others received briefing materials on the industrial electronics sector from Employee A, who covered Elpida Memory stock, from which references to Elpida Memory had been deleted in accordance with the internal regulations of the said securities company.) Whereas this information was announced on July 11, 2011, the Company acted prior to the announcement to sell a total of 32,600 shares of Elpida Memory on July 6, 2011, on the account of the said foreign-domiciled hedge funds for the total amount of 30,414,986 yen.
This act of the Company was recognized as falling under the definition of having “conducted . . . Sales and Purchase, etc. set forth in Article 166(1) in violation of the provisions of Article 166(1) or (3)” as stipulated under Article 175(1) of the Financial Instruments and Exchange Act.
Pursuant to the Financial Instruments and Exchange Act, the administrative monetary penalty applicable to the above violation is 120,000 yen.
Details of the calculation are presented in the Attachment.
The present case was reported to the SESC by the securities company mentioned in Section 2 above as having been uncovered in the course of ongoing voluntary internal inspections and investigations. The said securities company has thereafter continued to cooperate with the SESC in its investigation.
(1) Pursuant to Article 175(1)(iii) of the Financial Instruments and Exchange Act and to Article 1-21(1)(i) of the Cabinet Office Ordinance on Administrative Monetary Penalty Provided for in Chapter VI-II of the Financial Instruments and Exchange Act, a person who has, for the purpose of investing assets under management, engaged in transactions specified under Article 175(1)(iii) of the Financial Instruments and Exchange Act (hereinafter referred to as "Violator") may be ordered to pay an administrative monetary penalty in the amount calculated as follows: (a) The total amount of money or other property paid or payable to the Violator as remuneration for the investment of the assets under management for the month in which the said transactions were executed (b) is multiplied by the highest value reached by the total amount of the issue included in the assets under management that was transacted during the period between the day on which the said transactions were executed and the last day of the month in which the said transactions were executed and (c) is then divided by the total value of the assets under management as of the last day of the month in which the said transactions were executed.
In the present case, the transactions in question involved the investment of two groups of assets under management. Therefore, the administrative monetary penalty is calculated separately for each group of assets under management and added together to obtain the total amount of administrative monetary penalty payable.
Assets under management (A):
(a) 62,073,784 yen × (b) 82,146,900 yen ÷ (c) 58,864,796,167 yen = 86,625 yen
Assets under management (B):
(a) 33,132,481 yen × (b) 23,527,900 yen ÷ (c) 21,866,025,539 yen = 35,650 yen
Total:
86,625 yen + 35,650 yen = 122,275 yen
(2) Pursuant to the provisions of Article 176(2) of the Financial Instruments and Exchange Act, the fraction less than ten thousand yen contained in (1) above shall be rounded down.