(Provisional Translation)
November 1, 2013
Securities and Exchange Surveillance Commission

Recommendation for Administrative Monetary Penalty Payment Order for Using Fraudulent Means of the Securities of Wedge Holdings CO., LTD.


1. Contents of the Recommendation

Pursuant to Article 20(1) of the Act for Establishment of the Financial Services Agency (the “FSA”), on November 1, 2013, the Securities and Exchange Surveillance Commission made a recommendation to the Prime Minister and the Commissioner of the FSA that an administrative monetary penalty payment order be issued in regard to a fraudulent scheme involving the securities of Wedge Holdings CO., LTD. (“Wedge”). This recommendation is based on the findings of the investigation into the use of fraudulent means, whereby the following violations of laws and ordinances were identified.

2. Summary of the Findings regarding Violations of the Laws and Ordinances

The person to be named in the Administrative Monetary Penalty Payment Order was in a position to control Asia Partnership Fund Group (“APF Group”) as a director and in other capacities of its member companies. APF Group was comprised of companies including Wedge, Showa Holdings CO., LTD and A.P.F. Hospitality CO., LTD (“Hospitality”) which had its headquarter in Thailand and had invested in a company owning a resort hotel as its business.

For the purpose of pumping up the prices of the securities of Wedge held by Showa Holdings CO., LTD and his family companies, the person to be named in the Administrative Monetary Penalty Payment Order did the following: (i) on March 4, 2010, he directed Wedge to make a disclosure on the Timely Disclosure network (“TDnet”) that contained false information that stated, with respect to the subscription by Wedge of the convertible debentures issued by Hospitality, Wedge would expect an acquisition of Hospitality shares through exercising the conversion rights of the convertible debentures as well as the increase in investment profits such as interest income; (ii) from March 5 to 12, 2010, he disguised the payment on the convertible debentures by rotating funds less than its payment amount, 800 million yen, among APF Group companies including Wedge and Hospitality; and (iii) on March 9, 2010, he directed Wedge to make a disclosure on TDnet of false information that stated that it would expect an increase in investment profits such as interest income, as well as giving a related earnings estimate. These disclosures did not reflect material circumstances which would give rises to doubt about the asset value of the convertible debentures. In fact, relating to the subscription of the convertible debenture issued by Hospitality, Wedge could not expect the acquisition of Hospitality shares by exercising the conversion rights. Nor could it expect the increase in investment profits such as interest income to be paid by Hospitality, the debts of which exceeded its assets. The convertible debenture did not have the asset value of 800 million yen. Furthermore, Hospitality, due to its corporate form, was prohibited from issuing convertible debentures under the Civil and Commercial Code of Thailand. Consequently it could not obtain an issuance approval by Securities and Exchange Commission Thailand. The payment to be made for the convertible debentures was disguised by rotating funds less than its payment amount, 800 million yen, within APF Group.

Through this series of acts, he pumped up the prices of the securities of Wedge and, therefore, influenced the price of the securities for the purpose of causing a fluctuation of quotations on securities.

His act was recognized as “trading by fraudulent means” conducted “in violation of the provision of Article 158” and “affecting the price of securities” as stipulated under Article 173(1) of the Financial Instruments and Exchange Act.

3. Calculation of the Amount of the Administrative Monetary Penalty

Pursuant to the Financial Instruments and Exchange Act, the amount of the administrative monetary penalty applicable to the above violation is 4,096,050,000 yen.

Details of the calculation are presented in the Attachment.

4. Others

We acknowledge the assistance of the Securities and Exchange Commission Thailand in this matter.

Attachment

1.Pursuant to Article 173(1)(ii) of the Financial Instruments and Exchange Act, where the number of securities purchased, etc. on its own account pertaining to the acts of violation (Note 1) exceeds the number of securities sold, etc. on its own account pertaining to the acts of violation, the amount of the administrative monetary penalty shall be calculated by deducting the amount listed in the following sub-item (1) from the amount listed in the following sub-item (2):

(1)Highest price of the securities sold, etc., pursuant to Article 130 of the Financial Instruments and Exchange Act, on each day of a one-month period following the termination of acts of violation (Note 2) × Excess transaction volume

(2)Value pertaining to purchase, etc. of securities with respect to the excess transaction volume

Note 1: If the wrongdoer (or his related persons) holds the securities, etc. pertaining to the acts of violation at the inception of the act of violation, he himself shall be deemed to have purchased, etc. on its own account at the price prevailing at the inception of the act of violation (pursuant to Article 173(7) of the Financial Instruments and Exchange Act and Article 33-8-3(i) of the Order for Enforcement of the Financial Instruments and Exchange Act).

In case of the unlisted securities etc., “the price prevailing at the inception of the act of violation” shall be reasonably assessed based on the price immediately before act of violation of the listed securities, etc. pertaining to the acts of violation (pursuant to Article 33-6(ii) of the Order for Enforcement of the Financial Instruments and Exchange Act).

Note 2: If the “highest price of the securities sold, etc. pursuant to Article 130 of the Financial Instruments and Exchange Act” does not exist and sales, etc. of the securities is that of unlisted securities, the prices reasonably assessed based on the highest price pursuant to Article 130 of the Financial Instruments and Exchange Act with respect to the listed securities pertaining to the acts of violation shall be used (pursuant to Article 1-9(3)(ii) of the Order for Enforcement of the Financial Instruments and Exchange Act Pursuant to Article 1-9(3)(ii) of the Cabinet Office Ordinance on Administrative Monetary Penalty Provided for in Chapter VI-II of the Financial Instruments and Exchange Act).

2. In this case, the amount of the administrative monetary penalty is 4,096,050,000 yen, which is computed pursuant to Article 176(2) of the Financial Instruments and Exchange Act by rounding down the fraction less than ten thousand yen from 4,096,056,500 yen which is the sum of (1) and (2) below.

(1) Calculation of the Amount of the Administrative Monetary Penalty for the Shares
The number of the shares of Wedge sold, etc. pertaining to the acts of violation is 0, and the number of the shares of Wedge purchased, etc. is 132,134 shares, which is the number of shares held at the inception of the acts of violation by the wrongdoer’s family companies as his related persons and deemed to have been purchased on its own account at the price prevailing at the inception of the acts of violation (12,000 yen).
The number of securities purchased, etc. pertaining to the acts of violation exceeds the number of securities sold, etc. pertaining to the acts of violation. Therefore, the amount shall be:

(39,250 yen × 132,134 shares)(The amount shall be calculated by multiplying the excess transaction volume (132,134 shares) by the highest price, among the highest price on each day of a one-month period following the termination of the acts of violation (39,250 yen))
- (12,000 yen × 132,134 shares)(value pertaining to purchase, etc. of securities)
= 3,600,651,500 yen

(2) Calculation of the Amount of the Administrative Monetary Penalty for the Convertible Bonds
The wrongdoer’s family companies held 10 units of convertible bonds issued by Wedge without exercising the conversion rights (the “CBs”). The CBs shall be included in the calculation of the amount of the administrative monetary penalty constituting “securities pertaining to the acts of violation” because the CBs are the type of bonds which holders can convert them into a specified number of shares of common stock in the issuing company (1,818 shares per a unit) and it is possible to affect the prices of the CBs through pumping up the prices of the shares.
The number of the CBs sold, etc. pertaining to the acts of violation is 0, and the number of the CBs purchased, etc. is 10 units, which is the number of the CBs held at the inception of the acts of violation by the wrongdoer’s family companies as his related persons and deemed to have been purchased on its own account at the price prevailing at the inception of the acts of violation.
The number of the CBs purchased, etc. pertaining to the acts of violation exceeds the number of the CBs sold, etc. pertaining to the acts of violation. Therefore, the amount shall be:

(39,250 yen × 1,818 shares × 10 units)(The amount shall be calculated by multiplying the excess transaction volume (10 units of the CBs) by the highest price among the prices reasonably assessed based on the highest price on each day of a one-month period following the termination of the act of violation (multiplying 39,250 yen by 1,818 shares))

- (12,000 yen× 1,818 shares × 10 units)(value pertaining to purchase, etc. of securities as to the excess transaction volume (The amount shall be calculated by multiplying the prices reasonably assessed based on the price immediately before the acts of violation (12,000 yen) by the number of shares to be allotted per the CB unit (1,818 shares) and the number of purchases, etc. of the CBs (10 units))

= 495,405,000 yen

[Reference]

The Amount of the Securities, etc. Subject to Calculation of the Administrative Monetary Penalty and How to Calculate the Amount of the Administrative Monetary Penalty

The amount of the securities, etc. which is subject to calculation of the administrative monetary penalty are 132,134 shares and 10 units of the convertible bonds (the “CBs”) as below:

(1) Calculation of the Amount of the Administrative Monetary Penalty for the Shares

The price per share prevailing at the inception of the acts of violation

12,000 yen

39,250 yen

The highest price, among the highest prices per share on each day of a one-month period following the termination of the acts of violation.

(39,250 yen×132,134 shares)-(12,000 yen×132,134 shares)=3,600,651,500 yen (I)

(2) Calculation of the Amount of the Administrative Monetary Penalty for the CBs

The price per unit of the CBs (The holders can convert one unit into 1,818 shares of common stock in the issuing company. Same shall apply hereinafter.) reasonably assessed based on the price immediately before the acts of violation of the listed securities, etc. pertaining to the acts of violation

12,000 yen ×1,818 shares

39,250 yen×1,818 shares

The highest price among prices reasonably assessed based on the highest price per unit on each day of a one-month period following the termination of the acts of violation

(39,250 yen×1,818 shares×10 units)-(12,000yen×1,818shares×10 units)

=495,405,000 yen (II)

The amount of the administrative monetary penalty is 4,096,050,000 yen, which is computed by rounding down the fraction less than ten thousand yen from 4,096,056,500 yen as the sum of (I) and (II) above.

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