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Heads Of Two Major Brokerage Houses Step Down Over Scandal

June 24, 1991

TOKYO (AP) _ In a widening scandal, the presidents of two huge securities houses announced their resignations today after their companies acknowledged compensating top clients for investment losses and securing loans for a former organized crime boss.

Largely because of the scandal, which also involves the other two of Japan’s ″Big Four″ Japanese brokerages, the Tokyo Stock Exchange declined a sharp 2.10 percent today.

Yoshihisa Tabuchi, president of Nomura Securities Co., the world’s largest brokerage, and Takuya Iwasaki, president of Nikko Securities Co., announced their resignations at separate news conferences.

Each will stay on as a company vice chairman, while vice presidents are promoted to the top post.

Analysts said the scandal could lead to changes in the way Japan’s brokerages do business.

The outcry ″demonstrates that there’s a kind of growing consciousness that some of the old rules are no longer acceptable,″ said Alicia Ogawa, a senior analyst at S.G. Warburg and Co.

But change can come slowly to Japan’s established way of doing business. Parliament has yet to consider election reform laws promised after a bribery scandal toppled the government of Noboru Takeshita in 1989.

A tense-looking Tabuchi announced his resignation at a hastily called morning news conference.

″I will not comment on the individual cases, but responsibility should be taken by the president,″ he said.

Iwasaki said he decided to resign ″fully acknowledging the series of reported allegations.″ He said he hoped his resignation ″will be some apology to the society and industry.″

It is not unusual for top Japanese executives to resign to take responsibility when their companies are linked to scandal. Both companies also announced that top executives would not receive their annual bonuses.

Mitsuru Hasegawa, a spokesman for the securities section of the Finance Ministry, said ″all aspects″ of the Nomura case were under investigation but refused to comment further.

Japanese business leaders and politicians have frequently been criticized as being too cozy, and although the 1989 Recruit Co. scandal toppled the Takeshita government no top political officials were ever charged.

The mass-circulation Asahi Shimbun reported Friday that Nomura and Nikko arranged loans through their subsidiaries worth $258.9 million for Susumu Ishii, ex-leader of the Inagawa-kai underworld syndicate.

Kyodo News Service reported today that the stock exchange was investigating suspected stock manipulation in connection with huge purchases of railroad company stock by Ishii on loans from the subsidiaries.

An exchange official refused to comment.

In response to a question about the reported links to the Inagawa-kai, Tabuchi said, ″There was an aspect in which we could not monitor the actual nature of the deal, but after some contact we began to understand the nature.″

On Friday, a Nomura spokesman also acknowledged that $119 million paid to customers might be viewed as ″compensation″ for investment losses. A Nikko official said his company had paid roughly $122.3 million.

Today, Japanese newspapers reported that Nomura compensated a government- affiliated pension corporation for $32 million in bond market losses.

Nomura and Nikko spokesmen have said their companies did not promise to cover customer losses to woo clients.

Buybacks are not considered illegal unless the firms promise in advance to cover client’s losses, according to the Finance Ministry. But two years ago, the ministry instructed securities companies to stop the practice of compensation, which had been widely criticized as unfair to small investors.

The other ″Big Four″ Japanese security houses - Daiwa Securities Co. and Yamaichi Securities Co. - have been accused by the media of similar buyback deals.

Robert Zielinski, an industry analyst for Jardine Fleming Securities, said that past stock scandals have had little effect on the economy or individual companies.

″My opinion is that there will be very little impact both on the stock market and Nomura Securities,″ he said. ″I don’t think people really care.″