SECURITIES AND EXCHANGE SURVEILLANCE COMMISSION

The Securities and Exchange Surveillance Commission (SESC) conducted the inspection of WestLB Securities Pacific Ltd., Tokyo Branch (WestLB), based on a provision of the Law on Foreign Securities Firms (LFSF), and found a legal violation described below.

The SESC sent a recommendation to the Financial Reconstruction Commission (FRC) and the Commissioner of Financial Services Agency to take disciplinary action against WestLB pursuant to Article 31(1) of the FRC Establishment Law on September 12, 2000.

(Solicitation with promise of special profit)

WestLB had initially been requested by plural corporate customers (insurance companies) to arrange a subordinate loan, which would elevate the insurance solvency of the corporate customers, by its good offices; however, WestLB could not find a financial institution which would provide them with the subordinate loan.

Consequently, in March 1998 and March 1999, WestLB, with the involvement of its manager of the Tokyo branch and its managing director of global derivatives and fixed income, showed each of the corporate customer a set of transactional scheme which had the credit risk of the subordinate loan flow back to a corporate customer itself, having a corporate customer take out the subordinate loan from a financial institution and, at the same time, purchase a bond of which the payment of the principal was connected with the credit risk of the subordinate loan.

Despite the fact that the scheme, taking out the subordinate loan, did not substantially elevate the insurance solvency of the corporate customers but padded out solvency margin ratios of the corporate customers outwardly, WestLB solicited securities transactions with promise to execute the transaction by the scheme.

(Violation of Article 14 (1) of the LFSF)

(As for violation before November 30 1998, Article 17 (1) of the LFSF prior to the amendment of 1998 is applied.)

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