Press Release
June 12, 2001
The Director-Generals of Kinki Regional Finance Bureau and Kyushu
Regional Finance Bureau conducted inspections of Osaka Branch
and Oita Branch of Kokusai Securities Co., Ltd. (Kokusai), based
on the provisions of the Securities and Exchange Law (SEL), and
found legal violations described below.
Today, the Securities and Exchange Surveillance Commission (SESC) sent recommendations to the Prime Minister and the Commissioner of Financial Services Agency (FSA) to take disciplinary and appropriate actions against Kokusai pursuant to Article 20(1) of the FSA Establishment Law.
1. Osaka Branch
(1) Acts of concluding agreements on discretionary transactions by brokers
From October 12, 2000 to January 18, 2001, the Director of the
Asset Management Consulting & Sales Department of Osaka Branch
repeatedly concluded agreements with a customer, which entitled
the Director to decide order prices and/or volumes at his discretion
when he received orders of stock transactions from the customer.
The Director did receive and execute orders, according to the
agreements, from October 13, 2000 to January 19, 2001.
From July 16, 1997 to December 13, 2000, a Sales Manager of the
Asset Management Consulting & Sales Department of Osaka Branch
concluded agreements with a customer, which entitled the Sales
Manager to decide order prices at his discretion when he received
orders of stock transactions from the customer. The Sales Manager
did receive and execute orders, according to the agreements, from
July 17, 1997 to December 18, 2000.
(Violation of Article 42(1)(v) of the SEL)
In the past inspections of Kokusai by Director-Generals of the Regional Finance Bureaus, the acts of conducting agreements on discretionary transactions by brokers had already been identified several times. Under those circumstances, the above-mentioned misconduct found in the latest inspection is recognized as stemming from a grave fault in the internal control of the company and, therefore, as violations not only by employees but also by Kokusai itself.
(2) Solicitation with promise of special profit
In November 1998, the Osaka Branch of Kokusai was requested by a corporate customer to make a donation of which amount was extraordinary for Kokusai.
In response to the request, with the involvement of the Branch Manager, and the Director and the Sales Manager of the Asset Management Consulting & Sales Department, Kokusai offered the corporate customer two issues of IPO stocks, in place of the donation, in December 1998. As these two IPO issues were expected to rise in price, despite the fact that only a few units of the IPO stocks were available in the Osaka Branch, Kokusai intended to distribute the corporate customer the IPO stocks arbitrarily, with a view to provide special profit.
With offering the above special profit, Kokusai solicited an asset manager of the corporate customer to purchase the IPO stocks.
(Violation of Ministerial Ordinance, Article 42(1)(ix) of the SEL)
(3) Acts of evading inspections
Kokusai conducted the following acts in the course of inspections of its Osaka Branch by the Director-General of Kinki Regional Finance Bureau.
In relation to the acts of concluding agreements on discretionary
transactions by brokers mentioned in (1), Kokusai, with the involvement
of the General Manager, and the Director and the Sales Manager
of the Osaka Branch, requested customers to make false answers
to inspectors as if such illegal agreements had never concluded.
Moreover, Kokusai, with the involvement of the General Manager and the Director of the Osaka Branch, made a false answer towards a question put by inspectors concerning who in the Branch took care of a specific customer. Although the Director of the Branch was in charge of the customer, Kokusai deliberately hid the fact and mentioned the name of another branch member.
In relation to the solicitation to transactions with special profit
mentioned in (2), Kokusai, with the involvement of an Executive
Officer and a General Manager of the Head Office, and the Sales
Manager of the Osaka Branch, made false answers which deliberately
hid the facts towards questions put by inspectors concerning the
distribution of IPO stocks.
(Violation of Article 198-5 (viii) of the SEL)
2. Oita Branch
(1) Misstatements concerning securities and other transactions
From January to August of 2000, with the involvement of the Branch Manager and a sales representative of the Oita Branch, Kokusai misstated sales materials of bonds. Although the principal of the bonds was not guaranteed, advertising postcards that were distributed to customers by the Branch falsely claimed as if the principal of the bond had been guaranteed.
(Violation of Ministerial Ordinance, Article 42(1)(ix) of the SEL)
Contact Person: S. Araki, International Section,
SESC
Tel. 03-3581-7868