(Provisional Translation)
April 26, 2013
Securities and Exchange Surveillance Commission

Recommendation for Administrative Action based on Findings of the Inspection of MRI INTERNATIONAL, INC.


1. Contents of the recommendation

Pursuant to Article 20, paragraph (1) of the Act for the Establishment of the Financial Services Agency, the Securities and Exchange Surveillance Commission (“SESC”) issued on April 26, a recommendation that the Prime Minister and the Commissioner of the Financial Services Agency (“FSA”) shall take administrative action against MRI INTERNATIONAL, INC.* (hereinafter referred to as the “Company”). This recommendation is based on the findings of the inspection by the SESC, whereby the following violations of the law and regulation were identified.

*Location of the head office: Las Vegas, Nevada, USA

Location of the Japan office: Chiyoda-ku, Tokyo

President and CEO: Mr. Edwin Y. Fujinaga

Representative in Japan: Mr. Junzo Suzuki

Capital: 18.1 billion JPY

Number of officers and employees: 347

Registration type: Type II Financial Instruments Business

2. Summary of the findings

The Company solicited and sold the rights (hereinafter referred to as the “Fund Equities”) that consisted of dividends distributed out of the profits realized by the business involving the purchase and collection of Medical Account Receivables (hereinafter referred to as “MARS”) in the United States of America (hereinafter referred to as the “Business”). There were two classes of Fund Equities, Fund A and Fund B with different terms and conditions for distributions, etc.

The Company explained to many individual customers that investments would be separately managed through trust accounts and other accounts, opened in the name of a third-party institution. It was found, however, that nearly all of the funds, which were deposited in the trust account for Fund A as investments by customers for the purpose of acquiring Fund Equities were remitted to the trust account for Fund B. In addition, it was found that funds were remitted from Fund B trust account to bank accounts opened in the Company’s name as well as to customers of Fund A and Fund B, and thus the Company’s own assets and the assets of Fund A and Fund B were commingled from at the latest 2011.

Given this situation, the following problems were identified with regard to the Company’s business operations, etc.

(1)Diverting investments of customers for the payment of dividends and redemptions to other customers

According to the deposit and withdrawal records of the above trust accounts, in the above-mentioned situation where the Company commingled assets from at the latest 2011, funds invested by customers for the purpose of acquiring Fund Equities were not used in the Business but were used to pay dividends and redemptions to other customers.

As the Company continued such transactions, the payment of dividends and redemptions to customers were delayed. Despite such situation regarding the trust accounts which manage the deposits and withdrawals of funds invested by customers, the Company continued solicitation for acquisition of Fund Equities.

The conducts mentioned above are acknowledged to fall under Article 52(1)(ix) of the Financial Instruments and Exchange Act (hereinafter referred to as the “FIEA”), which stipulates that the Prime Minister may rescind its registration or may order business suspension “when a wrongful act or extremely unjust act has been conducted with regard to Financial Instruments Business, and when the circumstances are especially serious.”

(2)Making false statements to customers in relation to the conclusion of financial instrument transaction contracts and their solicitation

While the Company solicited the acquisition of Fund Equities to many individual investors, the following problems were identified with regard to the Company’s solicitations in 2012 by reviewing the details of the Company’s website, customer brochures, Documents Delivered prior to Conclusion of Contracts, and contracts.

(a)Use of investments

Although the Company notified customers that investments would be used exclusively for the business involving the purchase and collection of MARS in the Company’s website, customer brochure, Documents Delivered prior to Conclusion of Contracts, and contracts, as noted in (1) above, from at the latest 2011, funds invested by customers were used to pay dividends and redemptions to other customers.

(b)Payment of distributions

Although the Company notified in Documents Delivered prior to Conclusion of Contracts and contracts that it would pay customers dividends out of the profits realized on the Business, as mentioned in (1) above, the Company used funds invested by customers to pay distributions to other customers from at the latest 2011.

Given the situations of (a) and (b) above concerning the payment of dividends and redemptions of investments, the notifications described in the Company’s website, customer brochures, Documents Delivered prior to Conclusion of Contracts, and contracts constituted the conduct of making false statements, and this conduct is acknowledged to be “an act of providing a customer with false information concerning the conclusion of a Contract for Financial Instruments Transaction or solicitation thereof” as stipulated under Article 38(i) of the FIEA.

(3)Preparing business reports with false statement and submitting such reports to the director-general of the Kanto Local Finance Bureau

In the business report for the 12th business year, from January 1 to December 31, 2010, and the business report for the 13th business year, from January 1 to December 31, 2011, the Company stated figures that differed from the actual situation for the total assets, and the total liabilities and net assets at the end of each business year and submitted these business reports to the Director-General of the Kanto Local Finance Bureau.

The above conduct is acknowledged to violate Article 47-2 of the FIEA.

(4)False reporting in response to an order for production of reports

The Company replied that it had performed an internal assessment of the trust accounts jointly with a third-party institution in response to an order for production of reports issued by the SESC to the Company’s president, etc. in the course of this inspection. However, the fact that such an internal assessment had been performed by the Company jointly with a third-party institution was not found.

The above conduct is acknowledged to fall under Article 52(1)(vi) of the FIEA, which stipulates that the Prime Minister may rescind its registration or may order business suspension “when violating laws and regulations or disposition given by government agencies under laws and regulations pertaining to Financial Instruments Business.”

Furthermore, it was also identified in the inspection that an extremely improper situation continues with respect to the protection of investors, such as the situation where the Company has already prepared brochures and other solicitation materials for 2013 and planned to make solicitation for acquisition to many new customers, and that this situation urgently requires correcting.

3. Others

We acknowledge the assistance of the United States Securities and Exchange Commission in this inspection.

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