SESC Latest Topics No.95＜December 2023＞

Court issuance of prohibition and stay order against S DIVISION HOLDINGS INC. and STEPCAPITALMANAGEMENT, Inc., and their manager.

<Summary>

In response to a petition filed on June 28, 2023, by the SESC with the Osaka District Court for a prohibition and stay order against S DIVISION HOLDINGS INC. (hereinafter “SDH”) and STEPCAPITALMANAGEMENT, Inc. (hereinafter “CAPITAL”), and their manager for conducting public offerings of SDH’s foreign corporate bonds and CAPITAL’s corporate bonds, without statutory notification, and dealing in public offerings or private placements of SDH’s foreign corporate bonds, without statutory registration, a court order was issued as per the content of the petition.

Recommendation for administrative disciplinary action against SBI SECURITIES Co., Ltd.

<Summary>

The SESC recommended that the Prime Minister and the Commissioner of the FSA take administrative disciplinary action against SBI SECURITIES Co., Ltd. (hereinafter "the Company"), which is a Type I and Type II Financial Instruments Business Operator and an Investment Advisor/Agency. This recommendation is based on the findings of an inspection of the Company, whereby, the SESC identified that the Company had accepted, etc. orders to buy listed financial instruments on a financial instruments exchange market while knowing that these orders would result in the formation of manipulative quotations not reflecting actual market status by causing fluctuations, etc. in prices of the listed financial instruments.
Specifically, in initial public offerings of three stocks for which the Company served as lead managing underwriter, the Company aimed to keep their opening prices above their offering prices. For this purpose, the Company requested employees at the Company's Hong-Kong arm and several financial instruments intermediary service providers to solicit purchase orders for the three stocks at limit prices equal to their offering prices before the opening session on the listing date, and accepted such purchase orders from nine institutional investors and 174 retail investors.

Recommendation for an administrative monetary penalty order for insider trading by one employee of Corporation A and one employee of Corporation B, both of which concluded a contract with a subsidiary of THE JAPAN STEEL WORKS, LTD (hereinafter “the Company”), and by a recipient of information from Corporation C which concluded a contract with a subsidiary of the Company.

<Summary>

The SESC recommended that the Prime Minister and the Commissioner of the FSA issue an administrative monetary penalty payment order to an employee of Corporation A (hereafter “Employee (1)”) and an employee of Corporation B (hereinafter “Employee (2)”), both of which concluded a contract with a subsidiary of the Company, and a recipient of information from Corporation C which concluded a contract with a subsidiary of the Company.
 
Based on an inspection, the SESC determined that Employee (1), Employee (2) and the recipient of information above had committed insider trading by short selling shares of the Company, using insider information, in violation of the Financial Instruments and Exchange Act.
 
1,850,000 yen penalty against Employee (1)
720,000 yen penalty against Employee (2)
2,410,000 yen penalty against the recipient of information

Filing criminal charges of spreading of rumors and using fraudulent means in relation to the shares of Proroute Marumitsu Co., Ltd.

<Summary>

The SESC filed criminal charges against three suspects with the Tokyo District Public Prosecutors Office for violations of the Financial Instruments and Exchange Act (spreading of rumors and use of fraudulent means).
 
Suspect A was the representative director of Company X, the top shareholder of Proroute Marumitsu Co., Ltd. (hereinafter "Proroute Marumitsu"), which was listed on the JASDAQ market operated by Tokyo Stock Exchange, Inc. (hereinafter "TSE") Suspect B was a shareholder of Company Y, and Suspect C was a shareholder and the representative director of Company Y. Although the truth is that Company Y did not engage in any business at all and had no plans to engage in any business, the share value of Company Y and the share exchange ratio were determined by deliberately overestimating the corporate value of Company Y based on a false business plan. When Proroute Marumitsu announced on December 18, 2019, through TDnet (Timely Disclosure Network operated by the TSE) that Proroute Marumitsu had concluded a share exchange agreement with Company Y to make Company Y a wholly-owned subsidiary through the share exchange on the same day, the suspects in conspiracy, in order to raise the share price of Proroute Marumitsu, had the officers and employees of Proroute Marumitsu make a public announcement containing false information as follows: “Company Y's main business is to license the right to manufacture and sell concert goods to a manufacturer and receive a certain amount of product sales as royalties in exchange for the license, and its future profits are highly reliable, and in light of the corporate value calculated by a third party based on Company Y's business plan for the period from the fiscal year ending December 2020 to the fiscal year ending December 2024, the value of Company Y's shares was deemed to be appropriate at JPY 168,200 per share, and the share exchange ratio was set at one share of Company Y for 1,450 shares of Proroute Marumitsu.” In this way, the suspects spread rumors and used fraudulent means for the purpose of causing a fluctuation in the market price of a security.

Recommendation for an administrative monetary penalty payment order against insider trading in shares of Ateam Inc. (hereinafter, “Company”) by a person who was tipped by an employee having negotiations to enter into an agreement with the Company.

<Summary>

The SESC recommended that the Prime Minister and the Commissioner of the FSA issue an administrative monetary penalty payment order of 4,920,000 yen against insider trading in shares of the Company by a person who was tipped by an employee having negotiations to enter into an agreement with the Company.
 
Based on an investigation, the SESC found that the person purchased shares of the Company on the basis of material nonpublic information in violation of the Financial Instruments and Exchange Act.

Recommendation for an administrative monetary penalty payment order against EduLab.Inc. for making false statements in its disclosure documents.

<Summary>

The Securities and Exchange Surveillance Commission (SESC) made a recommendation that the Prime Minister and the Commissioner of the Financial Services Agency impose an administrative monetary penalty order of 237,055,000yen against EduLab.Inc. (hereinafter, “the Company”). As a result of an inspection from a disclosure-regulation perspective, the SESC found that the Company had prepared consolidated financial statements that contained an excessive amount of current net profit due to improper accounting treatment and submitted Annual Securities Reports and Quarterly Reports and a Securities Registration Statement containing such statements. The SESC accordingly decided that the Company had made false statements in the disclosure documents.

Filing criminal charges of committing submission of an annual securities report containing false disclosure statements against Proroute Marumitsu Co., Ltd., and suspects.

<Summary>

The SESC filed criminal charges against one suspected company and five suspects with the Tokyo District Public Prosecutors Office for violation of the Financial Instruments and Exchange Act (submission of a false annual securities report).
 
The suspected company, Proroute Marumitsu Co., Ltd. (hereinafter the “suspected company”), whose head office is located in Chuo-ku, Osaka, is engaged in the manufacture and sale of children's and men's clothing, etc. and its shares were listed on the JASDAQ market operated by the Tokyo Stock Exchange, Inc. Suspect A was the representative director of Company X, Suspect B was in control of overall business operations as the chairperson and a director of the suspected company, and Suspect C was in control of overall business operations as the representative director of the suspected company, and Suspects D and E were shareholders of the suspected company.
 
On June 17, 2021, the five suspects in conspiracy submitted the company’s annual securities report for the fiscal year beginning March 21, 2020, and ending March 20, 2021, to the Director-General of the Kinki Local Finance Bureau. The report contained a falsified consolidated profit and loss statement which indicated operating profit of JPY 63.773 million (amounts less than JPY 1,000 are disregarded; the same shall apply hereinafter), ordinary profit of JPY 54.059 million, and net income before taxes of JPY 43.955 million with the recording of fictitious sales, although in actuality, operating loss was JPY 69.814 million, ordinary loss was JPY 85.527 million, and net loss before taxes was JPY 95.632 million. In this manner, the suspected company submitted its annual securities report containing false statements on material particulars with regard to its business.