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Companies Deny Links to Scandal; Reports of Crackdown on Brokerages

July 4, 1991

TOKYO (AP) _ Tokyu Corp. and Hitachi Ltd., two giant companies that were apparently reimbursed for their stock market losses by big Japanese brokerage firms, denied Thursday that they knew about the deals.

Meanwhile, a published report said officials will publicly punish some brokerages linked to the scandal.

Executives from Tokyu, a railway company and Hitachi, Japan’s largest electric equipment manufacturer, held separate news conferences to claim they were unaware that millions of dollars they lost in the falling stock market were reimbursed by the brokerage houses.

″We believe it just happened by accident,″ said Yoshiko Shibato, a Hitachi official. ″We don’t believe Nomura (Securities Co.) compensated us, because it hasn’t before.″

The scandal involving the nation’s top four securities firms has stunned traders and small investors and brought calls for more government regulation of stock transactions.

The newspaper Nihon Keizai Shimbun on Thursday reported that the four firms will not be allowed to solicit business from corporate clients for two days next week as punishment. But a Finance Ministry official, who spoke on condition of anonymity, said no decision had been made.

The report also said government tax officials found that Nomura paid a total of $21.5 million to Hitachi and Tokyu to cover losses when prices plunged on the Tokyo Stock Exchange last year.

The Finance Ministry also plans to ask the brokerages to cut the salaries of some executives, restrict the use of discretionary funds reportedly used for compensation payments, and avoid dealings with gangsters, according to Nihon Keizai Shimbun, the nation’s leading financial newspaper.

The presidents of Nomura and Nikko Securities Co. stepped down last week after their companies were accused of arranging loans for a former gangland boss and of compensating favored clients.

Such compensation is not illegal unless promised to a client in advance, but the Finance Ministry has been trying to curb the practice because it discourages small investors.

Yamaichi Securities Co. and Daiwa Securities Co. are the other two firms implicated in the scandal.

The two-day restriction on business would be similar to action ordered against Daiwa in 1989 after the company paid $72 million to compensate customers for trading losses, Kyodo News Service reported.

Analysts said the penalties, if imposed, would be soft by Western standards but tough by standards in Japan, where the government usually disciplines companies behind the scenes.

″They usually just give a warning,″ said Megumi Suto, assistant professor of finance and industrial organization at Meikai University in Urayasu.

Some analysts said the ministry also was attempting to salvage its reputation after being widely accused of overlooking questionable dealings in the stock market.

Hitachi managing director Asahiko Isobe said the company discovered a net profit of hundreds of thousands of dollars when it rechecked its investment fund with Nomura. But Isobe said he did not know why its losses had disappeared since Nomura had control over the investment funds.

Tokyu officials also denied any wrongdoing, and criticized Nomura for allegedly driving up Tokyu’s stock price to provide funds for a former gang leader.

Nomura executive vice president Yasuhiro Mizuuchi said his company does not comment on relations with individual clients.

Update hourly