(Provisional Translation)
December 21, 2001
Financial Services Agency

An administrative action against Goldman Sachs Japan Ltd., Tokyo Branch

1. Short-selling in breach of Securities & Exchange Law

(1)	Short-selling of stock on its own account without disclosing the fact of short-selling to the exchanges in the execution of borrowing stocks with call option. The Securities and Exchange Surveillance Commission(SESC) conducted the inspection of Goldman Sachs Japan Ltd., (''the Branch'' hereafter) and, found the following legal violations of the Securities & Exchange Law. The SESC sent the recommendation to the Commissioner of the Financial Services Agency(FSA) to take disciplinary action against the Branch on December 19, 2001. During the period from November 16, 1998 until July 31, 2001, the Branch executed short-selling of stocks on its own account without legally required disclosure of the fact of short-selling to the stock exchanges 2,368 times.
	*) Previous inspection In November 1998, short-selling of stock in breach of the Law and Regulations were found by the previous inspection by SESC. The Branch reported to the FSA how they implemented the measures to improve the compliance with the Law and Regulations regarding short-selling, on March 30, 1999.
(2)	Short-selling of stocks on its own account in execution of VWAP (Volume Weighted Averaged Price) without disclosing the fact of short-selling to the exchanges and at the prices lower than the latest published one. The Branch first reported to the FSA on May 21, 2001 that it failed to disclose the fact of short-selling to the stock exchanges when executing short-selling of stocks on its own account. As a result of a detailed internal inspection directed by the FSA, the following violations of the law were found on November 9, 2001; During the period from October 23, 1998 until May 29, 2001, when executing short-selling of stocks on its own account, the Branch did not disclose the fact of short-selling to the stock exchanges 37,457 times. According to inspection of FSA targeting all selling-orders to execute VWAP from the Branch with samples of two trading days, the Branch made short sales at prices lower than the latest published price immediately prior to the short sale (31 times for 5 stocks during two sample days).
(3)	The series of conducts above are found to violate the Article 26-3 (1) and (6), the Article 26-4 (1) and (5) of the Cabinet Order (Securities & Exchange Law) and Article 162 (1) (i) of the Securities & Exchange Law, both of which regulate short-selling.

2. Non-securities business without prior approval by the FSA or notification to the FSA

The following violations of Securities & Exchange Law were found as a result of inspection conducted by the Inspection Department of the FSA.(The FSA already notified the findings to the Branch on December 19, 2001).

The Branch conducted the following non-securities businesses without prior approval by the FSA or notification to the FSA;

(1)	Credit derivative transactions.
(2)	Intermediation of sale/purchase of interest in limited partnership and limited liability company.
(3)	Operations for pursuing business specific entities, etc.
(4)	Operations for pursuing business of affiliated companies other than specific entities, etc.
(5)	Intermediation of making a silent partnership agreement among parties.
(6)	Intermediation of cash lending/borrowing.
(7)	Intermediation of commodity derivative transactions.

The Branch also misrepresented the facts about the day of starting the above-listed businesses when submitting applications for approval to the FSA.

Such conducts above are found to violate the Article 34 (3) and (4) of Securities & Exchange Law applied based on 14 (1) of the Law on Foreign Securities Firms (LFSF).

3. The administrative action against the Branch

On the basis of the above findings, the FSA issued the following orders to the Branch:

(1)	Suspension of Business
	1) Suspend all the stock trading on its own account for 10 business days from December 25, 2001 until January 11, 2002 excluding the execution of transactions contracted on or before Dec 21. 2) Suspend the businesses listed above, that were conducted without prior approval or notification, for 5 business days from Dec. 25, 2001 until January 4, 2002 excluding the execution of transactions contracted on or before Dec. 21.
(2)	Improvement of the compliance with the law
	1) Strengthen the internal control system, secure strict compliance by the directors and staff, make preventive measures against recurrence of the above mentioned violations, and clarify locus of responsibility. 2) Work out concrete measures to root out short-selling in breach of the Law including a target date, and to impose stricter internal penalty to a staff and his/her supervisor in the Branch. 3) Quarterly submit a written report to the FSA on the implementation of the 1) and 2) measures above.