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SEC Accuses Four Japanese Firms, Three Agree to Pay Fines

February 25, 1993

WASHINGTON (AP) _ The U.S. subsidiaries of four of Japan’s largest brokerage houses were charged Thursday with violating securities laws including one implicated in the Salomon Inc. government bond auction scandal.

The development was part of a series of actions involving some of the firms brought by three federal agencies as well as the New York Stock Exchange.

U.S. regulators launched their probe following a scandal in the Tokyo stock markets involving brokerage payments to cushion wealthy investors against losses. In August 1991, the Securities and Exchange Commission began investigating whether similar kickbacks - which are illegal under U.S. law - were occurring at Japanese firms’ U.S. affiliates.

Three of the firms, without admitting or denying wrongdoing, settled SEC charges of maintaining false records or faulty bookkeeping and agreed to pay fines ranging from $50,000 to $200,000.

They are Daiwa Securities America, a unit of Japan’s Daiwa Securities Co. Ltd.; Nomura Securities International Inc., a unit of Nomura Securities Co. Ltd.; and Yamaichi International (America) Inc., a unit of Yamaichi Securities Co.

Yamaichi also was fined $100,000 by the New York Stock Exchange for compensating a customer for trading losses, but the firm said that was an isolated case in its New York office and unrelated to the Tokyo scandal. No other firm was charged with giving kick-backs to its customers.

Nikko Securities Co. International Inc., the U.S. subsidiary of Japan’s Nikko Securities Co. Ltd., did not agree to a settlement with the SEC.

Nikko was charged in a federal civil lawsuit with covering up $18 million lost through speculative foreign exchange trading between October 1989 and March 1991.

″For approximately five months, Nikko (the U.S. firm) did not disclose the loss to its own legal or compliance department or its outside auditors, and deliberately concealed the loss from the (SEC), the NYSE and the public,″ the SEC charged in its lawsuit.

Nikko contested the SEC’s action, saying the proposed penalties ″were far greater than those required of any securities firms in the past.″ C. Evan Stewart, Nikko’s general counsel, declined to describe the proposed penalties.

Nikko contends it notified authorities of the improper trades. No customer funds were lost or at risk by the activity. The trader and three senior executives were fired in 1991 following an internal review.

In a separate matter, the SEC said Daiwa Securities America agreed to pay nearly $250,000 in penalties to settle unrelated charges stemming from its role in the Salomon bond trading scandal.

The Federal Reserve Bank of New York and the Treasury Department also imposed sanctions against Daiwa for the Salomon-related matter.

In August 1991, Salomon - one of the biggest securities firms on Wall Street - admitted numerous violations of auction rules, including bypassing federal limits on how much large bidders in the Treasury auctions can acquire.

Besides helping the government pay its bills, the Treasury auctions play an important role in the nation’s economy as a gauge for the interest rates. Salomon has since settled federal securities charges, agreeing to pay $290 million fines and penalties.

Daiwa was charged with making a $3.5 billion bid in a 1989 Treasury bills auction without disclosing that $3 billion was actually a bid for Salomon - which exceeded the legal limit one firm could bid for, the SEC said.

The SEC noted Daiwa and one of its executives, William M. Brachfeld, brought the matter to its attention.

Daiwa was censured and agreed to pay $249,340 to settle the case, and Brachfeld, the head of government securities trading for the firm, agreed to a three-month suspension from the industry and a fine of $41,918.

Lloyd Feller, Daiwa’s outside attorney in Washington, said the firm doesn’t believe the Fed’s one-month suspension or the three-month Treasury restrictions will hurt Daiwa’s overall activities in Treasury auctions.

Separately, the NYSE fined Yamaichi $100,000 for lying to investigators about reimbursing customers for bond market losses. The firm’s former chief executive officer, Genji Sugiyama of New York, was censured for ″making a material misstatement″ to NYSE investigations.

The NYSE said Yamaichi in June 1991 denied it had provided loss compensation to its customers.

″This was an isolated New York trade unrelated to anything that occurred in Tokyo, which we regret,″ the firm said in a statement.

The SEC barred former Yamaichi chairman Shoji Hattori from the U.S. securities industry for five years; the firm’s chief financial officer, Hiroshi Takenaka was barred for 120 days and the treasurer, Frank Mauceri was handed a 60-day ban.

Gary G. Lynch, outside counsel for Nomura - and a former SEC enforcement chief - described the violations as ″rather technical provisions of books and records″ regulations.

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