Nomura Hq Raided

Prosecutors raided the head office of Japans largest brokerage firm Nomura Securities on Thursday over a 50 million yen ($431,000) payoff to racketeers, further battering the companys once-proud reputation.

There were growing signs that regulators planned to use their investigation of the scandal to send a stern message to the countrys financial community to clean up business ethics.

The case casts doubt on corporate morality and has considerably damaged investors trust in the securities market, top government spokesman Seiroku Kajiyama told reporters.

There is a need for a full investigation and to develop measures to prevent a recurrence, he added.

 

The raid on Nomuras headquarters followed up the arrest on Wednesday of three former Nomura executives in a scandal that linked the brokerage company to racketeers known as sokaiya who extort money from companies by threatening to disrupt shareholder meetings.

Under arrest are former Nomura directors Shimpei Matsuki and Nobutaka Fujikura, both of whom resigned as directors on March 10 after an internal Nomura probe found they made discretionary deals banned under Japanese securities law.

The third is former general manager Osamu Fujita, a general affairs officer in charge of shareholder meetings, who prosecutors allege made the payments under Fujikuras orders.

Prosecutors believe the money was paid to stop sokaiya disrupting the companys 1995 annual meeting.

The Securities and Exchange Law bans brokerage houses from compensating clients for investment losses and from conducting discretionary stock transactions, in which the firms are fully entrusted to make investment decisions on behalf of investors.

Since the scandal broke in March, Nomuras president and 15 board members have resigned. and the agony seems nowhere near ending.

For the second time in three months, lines of prosecutors marched through Nomuras doors to pore over the records of a company that has been at the heart of Japans financial system since its founding by a moneychanger in the 19th century.

The firm employs nearly 11,000 staff in dozens of offices around the world and dominates both share and bond trading in Japan.

But the scandal has set off a slide in Nomuras fortunes as private clients have cut their links and the government has turned the screws on the companys business activities.

The Ministry of Finance has barred Nomura from underwriting government-backed bonds. It said the suspension would be in effect pending any punishment by government authorities.

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, have also suspended business with Nomura.

Kampo is Japans largest investor, controlling an enormous pool of funds that stood at more than 97 trillion yen ($836 billion) as of the end of February.

If Nomura succeeds in restructuring its current management structure after this costly lesson, there is no doubt that it will come back to the seat of top Japanese broker, even though their profitability declines temporarily after those punitive measures, said a senior manager at a major U.S. brokerage house.

Shares of Nomura were bid-only in early Thursday morning trade as investors held their breath about where the investigation would lead.