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Massive Insider Trading Suspected On Tokyo Stock Exchange

August 10, 1988

TOKYO (AP) _ Regulatory authorities suspect massive insider trading sent stock prices soaring on the Tokyo Stock Exchange before a major corporate cooperation agreement was announced, officials said Wednesday.

It was an unusual admission in Japan, where insider trading has been an acknowledged way of doing business. Until recently, securities laws have ignored all but the most blatant forms of trading based on privileged information.

Officials at the Finance Ministry and the Tokyo Stock Exchange said they were investigating a case last month in which the share price of Sankyo Seiki Manufacturing Co., a precision machinery maker, jumped hours before the announcement of Sankyo’s agreement with Nippon Steel Co., Japan’s largest steel maker. The companies did not merge or form a joint venture but agreed officially to cooperate in some areas.

The Tokyo Stock Exchange took the unusual move of suspending trading in Sankyo shares on the afternoon of July 29, but the volume of Sankyo shares traded in the morning was still nearly 10 times the previous day’s level.

Securities officials who spoke on condition of anonymity said they suspected a leak.

The national daily Asahi Shimbun and the Japan Broadcast Corp. reported that numerous Nippon Steel and Sankyo employees bought several thousand Sankyo shares early on July 29. Both companies denied the allegation.

Under current laws, workers who bought the shares with prior knowledge of the tie-up will not be subject to criminal punishment. But the government can warn the companies or take administrative action, such as prohibiting them from exporting for a while.

A stock exchange official said the body has asked securities companies that dealt in Sankyo shares to submit lists of investors.

″We have obtained information on about 90 percent of the people who bought Sankyo shares on that day,″ said Hitoshi Shimakura, head of the exchange’s Transaction Review Section.

The case is the latest in a series of stock scandals that have shaken political and business circles in Japan. It came to light at a time when public outcry for stricter controls over insider trading has been growing.

This summer, aides to some of Japan’s top political and business leaders, including Prime Minister Noboru Takeshita, made huge profits by buying unlisted shares of a Tokyo real estate concern and selling them after public trading began.

That incident, called ″Recruit-Gate″ after the real estate firm Recruit- Cosmos, grew into a major impediment for Takeshita when the political opposition used it to block parliamentary debate on the government’s unpopular tax revision package.

Takeshita, Finance Minister Kiichi Miyazawa and a dozen other top politicians admitted their aides were involved and apologized for poor supervision.

The deals were legal under Japanese laws but highlighted the close ties between business and politics and raised questions about political ethics.

The Finance Ministry decided last week to hasten by more than two months the implementation of the Revised Securities Exchange Law, which gives authorities power for tighter surveillance and control and allows for criminal punishment for insider trading.

The new law, announced in February, will take effect in stages beginning this month instead of November, officials said.

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