Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, March 23, 2012, from 8:39 a.m. to 8:53 a.m.)

[Opening Remarks by Minister Jimi]

On Thursday, March 22, the Securities and Exchange Surveillance Commission (SESC) recommended that the Financial Services Agency (FSA) should take administrative actions against AIJ Investment Advisors Co. and ITM Securities Co., as acts of legal violation, such as giving customers false information, have been recognized as a result of the inspection of the companies.

Upon this recommendation, the FSA took administrative actions against both companies based on Article 52-1 and Article 51 of the Financial Instruments and Exchange Act today, March 23.

The administrative actions taken at this time are the cancellation of the registration of AIJ Investment Advisors, the issuance of an order for the company to improve business operation so as to facilitate the protection of customers' assets, the issuance of an order for ITM Securities to suspend business operation for six months and a business improvement order for the company so as to facilitate the protection of customers' assets.

Regarding this case, it is very regrettable that a situation like this has arisen. I understand that today, the SESC started criminal investigation. That is all I have to say.

[Questions & Answers]

Q.

As this case entered the new phase of criminal investigation, the possibility has been pointed out that investment advisory companies may not have been adequately inspected. Could you tell me again how you, as the top official of the FSA, recognize the FSA's supervisory responsibility in this case?

A.

As a result of the inspection of AIJ Investment Advisors and ITM Securities that the SESC has been conducting since January this year, acts of legal violation, such as giving customers false information, have been recognized and accordingly, the SESC recommended yesterday that the FSA should take administrative actions.

Upon the SESC's recommendation, the FSA early this morning cancelled the registration of AIJ Investment Advisors and issued an order for ITM Securities to suspend business operation for six months, and it also issued orders for both companies to improve business operation so as to facilitate the protection of customers' assets.

I hear that today (March 23), the SESC started a criminal investigation. However, as the SESC is an independent commission, it is not subject to the chain of command under me. I hope that this will lead to further clarification of facts.

It is very regrettable that such acts of legal violation by financial institutions under the FSA's supervision have been recognized. As for the prevention of a recurrence of cases like this, problems that have come to light in this case include false reporting on asset investment and solicitation using false information by a company managing customers' assets based on discretionary investment contracts and the prevention of the exercise of the function of third-party checks due to the alteration of data by a company managing customers' assets based on discretionary investment contracts. I believe that we need to consider a broad range of effective measures to prevent the recurrence of these problems in light of practical work processes of financial business.

In any case, as I have been saying from the beginning, the FSA and the SESC take various criticisms sincerely and will make every possible effort to prevent a recurrence without ruling out any option based on the results of the recent inspection by the SESC and the survey targeting all companies managing customers' assets based on discretionary investment contracts while maintaining close cooperation with all ministries and agencies, particularly the Ministry of Health, Labour and Welfare, which has jurisdiction over pension-related matters.

Q.

The SESC has conducted inspection for the past month because the contents of business reports were gravely doubtful. After all, what facts have been identified over the past month regarding why such a large amount of funds have been lost and whether they have been lost as a result of asset investment, have been diverted for other purposes, or have been transferred to a third-party person?

A.

As that concerns the results of the SESC's investigation, I would like you to ask questions at a briefing scheduled to be held later.

Q.

Could you tell me again whether you think that the FSA has responsibility to bear? And what are the points to reflect upon?

A.

In any case, we will make efforts to prevent a recurrence of problems without ruling out any option while accepting criticism sincerely.

As for the prevention of a recurrence, problems that have come to light in this case include false reporting on asset investment, solicitation using false information by a company managing customers' assets based on discretionary investment contracts, and the prevention of the exercise of the function of third-party checks due to the alteration of data by a company managing customers' assets based on discretionary investment contracts. I believe that we need to consider a broad range of effective measures to prevent a recurrence of these problems in light of the practical work processes of financial business.

Also, we have been severely criticized for failing to act upon the variety of information provided to us. However, for example, the September issue of Newsletter on Pensions and Investment magazine published by Rating and Investment Information Inc., which are owned by Nikkei Inc. and other companies - I hear that this is generally regarded as an authoritative magazine concerning pension-related matters - carried an article showing the results of annual assessment surveys conducted on pension fund associations and major companies.

According to the survey results, AIJ Investment Advisors was given high marks by customers and continued to be ranked high on the list of favored hedge funds over the five-year period between 2007 and 2011, and the company was given a prominent coverage in the article.

As I mentioned in the Diet yesterday, the funds were ranked based on the quantitative assessment of their active investment capability and AIJ Investment Advisors was ranked first for the five years from 2007 to 2011, surpassing major companies such as Sumitomo Trust & Banking and Goldman Sachs. In the ranking of investment companies that increased shares, it was ranked first in 2008 and 2010.

On the other hand, it was confirmed that officials related to the Newsletter on Pensions and Investment tipped off the contact sections of the FSA and the SESC about AIJ Investment Advisors several times between February 2009 and the start of the investigation of the company. In addition, of 6,000-7,000 pieces of information received by the SESC annually, around 1,000 concerned financial instruments business operators. It has so far been confirmed that four pieces of information were provided concerning AIJ Investment Advisors, three of which were provided by anonymous sources and one of which was provided by a source which revealed its real name. These figures concern information provided to the SESC's contact section with regard to AIJ Investment Advisors.

Meanwhile, no information (including complaints and requests for consultation) was received by the FSA's Counseling Office for Financial Services Users with regard to AIJ Investment Advisors between April 4, 2008, and the start of the inspection.

These are some of the facts related to this case. As I said at the beginning, this case is very regrettable.

Q.

You have not answered a question asked twice earlier. Do you think that the FSA has responsibility to bear in the AIJ Investment case?

A.

I have made clear that this case is very regrettable. It is important to clarify facts first.

Q.

When you say that “it is very regrettable,” may I take it that you think the FSA has responsibility to bear?

A.

That is your interpretation. For my part, I think that it is very regrettable.

Q.

How do you feel about the insider trading case at Chuo Mitsui Asset Trust & Banking? Also, how do you feel about the fact that Nomura Securities, which is the largest securities company in Japan, provided the insider information, and what impact do you expect?

A.

On March 21, the SESC recommended that the FSA should order the payment of monetary penalty based on the Financial Instruments and Exchange Act in relation to a case of insider trading involving Chuo Mitsui Asset Trust & Banking.

It is really regrettable that a financial institution conducting business operations of a highly public nature engaged in an illegal practice. Upon this recommendation, the FSA will implement strict examination procedures in accordance with laws and regulations. Generally speaking, highly effective monitoring by the SESC of problems that may undermine confidence in the Japanese market, such as cases of insider trading related to public offering of shares, will contribute to the improvement of the reliability of the Japanese market.

I understand that in this case, a securities company employee involved in negotiations with Inpex Corporation about a stock purchase provided the information. However, as the recommendation for the order for the payment of monetary penalty was not targeted at the securities company, I would like to refrain from naming that company.

(End)