March 23, 2012
Securities and Exchange Surveillance Commission

Recommendation for Administrative Action based on Findings of the Inspection of AIJ Investment Advisors Co., Ltd.


1. Contents of the recommendation

Pursuant to Article 20, paragraph (1) of the Act for Establishment of the Financial Services Agency (FSA), on March 22, 2012, the Securities and Exchange Surveillance Commission (SESC) issued a recommendation that the Prime Minister and the Commissioner of the FSA shall take administrative action against AIJ Investment Advisors Co., Ltd.* (hereinafter referred to as the "Company"). This recommendation is based on the findings of the inspection of the Company, whereby the following violations of laws and regulations by the Company were identified.

*Basic information regarding AIJ Investment Advisors Co., Ltd.
Location: Chuo-ku, Tokyo
President and CEO: Kazuhiko Asakawa
Capital: 230 million JPY
Number of officers and employees: 11
Registration type: Investment management business

2. Summary of the findings

- Serious violations of laws and regulations in terms of the public interest and protection of investors with regard to discretionary investment business

(1) Providing false information when soliciting conclusions of discretionary investment contracts

(a) Whereas the Company has instructed its customers, such as pension funds, with which it has concluded discretionary investment contracts (such customers are hereinafter referred to as the "Customers") to purchase the unites of the sub-funds of the AIM Global Fund (hereinafter referred to as the "AIM Fund"), which is a foreign investment trust managed by the Company as assets to be invested in under said discretionary investment contracts, the Company was acknowledged to have calculated and reported to the Customers false net asset values of the sub-funds of the AIM Fund (hereinafter referred to as the "False NAV").

(b) When calculating the False NAV, the president of the Company calculated specific figures based on his market outlook as the False NAV.

(c) The False NAV calculated by the president of the Company was reported to ITM Securities Co., Ltd. (hereinafter referred to as "ITM"), which is the securities firm selling the units of the AIM Fund, by a director of the Company who also served as a director of the administrator of the AIM Fund.

(d) With regard to solicitation of conclusions of discretionary investment contracts, the Company was acknowledged to have solicited at least 66 customers (pension funds) to conclude a discretionary investment contract by distributing leaflets containing the False NAV and investment status based on the False NAV in conjunction with ITM since October 2007.

The Company's conduct stated above corresponds to an act of providing customers with false information concerning the conclusion of a contract for financial instruments transaction. Therefore, the SESC recognizes that the above conduct falls under Article 38, item (i) of the Financial Instruments and Exchange Act (FIEA).

(2) Delivering investment reports with false contents to the Customers

With regard to the matters to be described in investment reports under Article 42-7, paragraph (1) of the FIEA and Article 134, paragraph (1), item (ii) of the Cabinet Office Ordinance on Financial Instruments Business, etc., the Company was acknowledged to have described the securities values by using the False NAV, and to have delivered those reports to the Customers.

The Company's conduct stated above corresponds to an act of preparing investment reports with false contents and delivering them to customers. Therefore, the SESC recognizes that the Company violated Article 42-7, paragraph (1) of the FIEA.

(3) Preparing a business report with false contents and filing it with the Director-General of the Kanto Local Finance Bureau

(a) In its business report for the 22nd period (the business year starting from January 1, 2010, and ending on December 31, 2010), the Company stated 183,210 million JPY (total amount of domestic assets under management) and 206,997 million JPY (total amount of overseas assets under management) as the total amount of its assets under management as of December 31, 2010, and the Company filed the report with the Director-General of the Kanto Local Finance Bureau.

(b) However, since these figures were false figures that were not based on the net asset values, etc. of the sub-funds calculated by the agent of the trustee bank of the AIM Fund, the SESC recognizes that the Company described false information in the business report.

The Company's conduct stated above corresponds to an act of preparing a business report with false contents and filing it with the Director-General of the Kanto Local Finance Bureau, and the SESC recognizes that the Company violated Article 47-2 of the FIEA.

(4) Violation of the duty of loyalty

(a) In connection with the investment of the assets of the pension funds, etc. that are its Customers, the Company, knowing that the value of the AIM Fund has been considerably impaired, has given instructions to purchase the AIM Fund at the False NAV that the Company has forged.

(b) Also, the Company has caused improper outflows of the assets of the AIM Fund, such as having the investment partnerships (which are in effect controlled by the president of the Company) in which the AIM Fund invests purchase the units of the AIM Fund at the False NAV in response to the cancellation request from existing Customers.

(c) In this manner, the SESC recognizes that the Company has not engaged in business with loyalty to the Customers as an investment management business operator.

The Company's conduct stated above corresponds to an act against the duty of loyalty, therefore, the SESC recognizes that the Company violated Article 42, paragraph (1) of the FIEA.

Reference materials (PDF:134KB)

Recommendations to the FSA | top