June 2, 2012 / 6:03 AM / 6 years ago

Japan to ask SEC to join insider trading crackdown: sources

TOKYO (Reuters) - Japan’s securities regulator plans to ask the U.S. Securities and Exchange Commission (SEC) to cooperate in a widening probe of insider trading in Japanese shares, two sources with knowledge of the situation said on Saturday.

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst

Japan’s Securities and Exchange Surveillance Commission (SESC) believes confidential information on a planned share offering by Tokyo Electric Power Co. in 2010 was leaked to American investors, according to the sources, who asked not to be named because the investigation remains ongoing.

The identity of the U.S. investors was not immediately clear. The move to involve the SEC in the probe marks an escalation of a crackdown on a practice that Japanese securities regulators believe has become widespread in the Tokyo market in recent years.

In the deals under investigation, investors were tipped off about planned share offerings by the brokerages involved, then short-sold the shares. They were then allowed to buy back into the offering to close the position at a profit, people involved in the investigation have said.

Japanese financial regulators have the power to act against foreign financial institutions with operations in Japan, but it was not clear what penalties they could seek against funds which may have engaged in insider trading from offshore.

Japanese officials who have been investigating the role of Nomura Securities Co. in insider trading cases believe information regarding the Tokyo Electric offer leaked from Nomura to U.S. investors through a third party, sources said.

On Friday, Nomura replaced the head of institutional sales at its core securities unit. A source with knowledge of the matter said Kenichi Ishitomi had been asked to relinquish his post to focus on cooperating with the SESC probe.

The SESC plans to ask foreign securities regulators to cooperate with the ongoing investigation if there is evidence to suggest investors in other countries profited from the same leak of insider information.

The SESC has declined to comment on the details of its ongoing investigation.

JP Morgan & Chase is the only foreign entity that has been implicated in the insider trading investigation so far. Investigators found that a JP Morgan salesman leaked information on a 2010 share offering by Nippon Sheet Glass to a Tokyo-based fund, sources have said.

JP Morgan, which has not been named as a target of investigation and may not face penalties, has said Japanese regulators had not found any “organizational” involvement in the improper trades.


The SESC intensified its inquiry into Nomura in late April, sending officials to the bank’s offices in Tokyo to investigate regulator’s suspicions that it had tipped off clients about a number of deals.

Regulators made the move after failing to obtain information they were seeking in an earlier, more cooperative phase of the investigation, sources have said.

The Tokyo Electric share offering announced in September 2010 was controversial even at the time, with some analysts suggesting that sharp sell-off in its shares suggested insider trading.

Shares in the utility, which is now being nationalized as a result of the high costs of cleaning up after last year’s Fukushima nuclear disaster, fell almost 13 percent in the two weeks before the share offering was announced.

Tepco raised $5.8 billion in the deal to finance investment in nuclear power and expansion plans in overseas gas and nuclear projects.

In late May, Nomura was linked to the second insider trading case in two months. In both cases, sources say employees tipped off a fund management client about share offerings it was underwriting before they were made public.

After the second case became public, Nomura said it had appointed a panel of outside lawyers to conduct an investigation of its own.

Nomura said it would use the review to decide how to improve operations, and whether any of its staff would be disciplined. The brokerage also said it was also cooperating with the SESC.

The SESC has sought to have a fine levied against the fund management arm of Sumitomo Mitsui Trust Holdings and Tokyo-based asset manager Asuka Asset Management for suspicion of insider trading.

Japanese regulators have been criticized for lacking the tough sanctions their counterparts in the United States can impose. In one recent case a Sumitomo Mitsui unit was fined 50,000 yen ($630) for an insider trading infraction.

Writing by Kaori Kaneko; Editing by Kevin Krolicki and Daniel Magnowski

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