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More Arrests in Japan Broker Scandal

November 6, 1997

TOKYO (AP) _ Executives at Daiwa Securities Co. were arrested Thursday in a spreading scandal over alleged payoffs to a racketeer.

Daiwa was the last unscathed company among Japan’s ``Big Four″ brokerages. The arrests of former vice president Hiromitsu Sogame and three other senior officials at followed earlier arrests at Nomura, Nikko and Yamaichi Securities, and of accused racketeer Ryuichi Koike.

In the last several months, the Japanese phenomenon called ``sokaiya″ has tarnished not only the Big Four, but also Dai-Ichi Kangyo Bank, Mitsubishi Motors Corp. and electronics giant Toshiba Corp.

For decades, racketeering has been routine in Japanese business. It wasn’t even made illegal until 1982.

Sokaiya (pronounced SOH’-kuy-yah), who number 1,000 nationwide, buy a token number of shares, then threaten to disrupt annual shareholders’ meeting with questions about declining profits, dubious strategy or an executive’s extramarital affair.

In a society where appearances are a key to respectability, companies prefer to pay up than be publicly embarrassed by rowdy men yelling questions.

But recently, authorities have started to crack down on sokaiya, hoping to squelch a potential international blight while Tokyo is preparing far-reaching reforms to bring its financial sector up-to-date with the West.

The top government spokesman pressed businesses Thursday to sever sokaiya ties.

``This is threatening to destroy the international credibility of the entire Japanese economy,″ Kyodo News service quoted Chief Cabinet Secretary Kanezo Muraoka as telling corporate leaders summoned to the prime minister’s residence.

Moody’s Investors Service said Thursday that it has placed Yamaichi’s ratings under review for a possible downgrade. The sokaiya scandal ``had a significant negative impact on the firm’s reputation and domestic business franchises,″ Moody’s said.

Also Thursday, ultranationalist groups accused police of violating their constitutional rights of free speech in the crackdown on sokaiya. Masaka Shinomiya, who puts out a 32-page monthly newsletter, said he has lost much of his previous 1 million yen ($8,000) in monthly subscription fees from about 100 companies.

Forcing companies to subscribe to sham publications is one tactic used by sokaiya to disguise payments. Police have repeatedly asked companies to stop such subscriptions.

The rightists, representing 50 groups, filed a complaint with the prosecutors’ office Wednesday, accusing a senior official at the Tokyo police department of illegally influencing companies to stop subscribing to their publications.

Neither a criminal investigation nor charges are likely to follow. But the rightists said they were considering filing a civil lawsuit demanding damages.

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