Nomura Legal Action Starts

Tokyo prosecutors have started questioning former directors of scandal-hit Nomura Securities Co Ltd over violations of the nations commercial code, NHK public broadcasting network said on Wednesday.

On Tuesday, Japans securities watchdog, the Securities and Exchange Surveillance Commission (SESC), filed a criminal complaint with prosecutors alleging that Nomura, two former executives and a former general manager compensated a client for investment losses.

In late March, prosecutors said that the client was linked to a sokaiya racketeer. Sokaiya extort money from a company by threatening to disturb shareholders meetings, and Japans commercial law has prohibited payoffs to racketeers since 1982.

A day after it became the target of a criminal probe over a payoffs scandal, Nomura Securities was dealt another blow on Wednesday by the defection of some of Japans most powerful financial institutions.

The ministry of finance said it was barring Nomura from underwriting government-backed bonds. It said the suspension would be in effect pending any punishment by the nations securities watchdog.

The Tokyo metropolitan government said it was considering excluding Nomura from underwriting its bond issues.

Japans government-backed Postal Life Insurance Bureau, or Kampo, as well as the Postal Savings Bureau, a government-backed savings bank, also suspended business with Nomura, the nations biggest brokerage.

We have stopped business with Nomura...we are not doing business with them now. Obviously, we cannot do business with a company that has had a criminal complaint filed against it, a senior official at Kampo told Reuters.

Kampo is Japans largest investor, controlling an enormous pool of funds that stood at more than 97 trillion yen ($815 billion) as of the end of February.

On Tuesday, the Securities and Exchange Surveillance Commission (SESC) filed complaints with prosecutors in the Nomura case, asking for criminal charges against three former executives as well as the firm itself.

Government sources said the complaints by the watchdog allege that Nomura and the employees made illegal payments to the client totalling 49.7 million yen ($417,600).

It was the first time that Nomura itself had been implicated in the affair and analysts said the development would make it more difficult for the company to recover from the scandal.

Some Japanese media reports said the three former executives had been arrested in the case.

But the prosecutors office denied the three had been arrested.

We are very angry that the media falsely reported the arrest of the three persons without our formal announcement, Deputy District Chief Prosecutor Kunihiro Matsuo told a news conference.

The case became public in March when the company said that two directors had improperly reimbursed a client for investment losses.

The client has ties to Japanese racketeers known as sokaiya, who extort money from companies by threatening to disrupt company shareholder meetings.