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Daiwa Bond Trader Pleads Guilty to Hiding $1.1 Billion Loss

October 19, 1995

NEW YORK (AP) _ The bond trader at the center of a spectacular $1.1 billion trading loss at Daiwa Bank pleaded guilty Thursday to a scheme to doctor records to hide years of losses and to personally profit from his trading.

Toshihide Iguchi, appearing somber and younger than his 44 years at a federal court appearance in Manhattan, told a judge he had agreed to cooperate with federal prosecutors in the case.

He said Daiwa’s senior management approved a further coverup of his bond scheme as recently as last month, just before the bank informed U.S. regulators of the losses.

He said that after he first told senior management about the scheme in July, he was asked several days later ``to continue concealing the losses.″

In an explosive statement read to U.S. District Judge Michael Mukasey, Iguchi said he told Daiwa senior management he would have to sell securities and forge additional bank statements to continue concealing the losses.

He told the judge he received permission to proceed and sold securities in three different instances last month, shortly before Daiwa informed U.S. regulators about Iguchi’s 11 years of unauthorized trading.

Iguchi said that in addition to the sales of securities management, he produced two fictitious bookkeeping statements with the knowledge of management.

The statements were the first time senior management of Daiwa Bank, based in Osaka, Japan, was directly implicated for approving Iguchi’s coverup of losses in the two months before reporting the losses to U.S. authorities.

No one else has been charged in the scandal. Sentencing has yet to be scheduled for Iguchi, who remains in custody.

A call seeking comment from Daiwa’s U.S. spokesman was not immediately returned.

Iguchi pleaded to guilty to conspiring with Daiwa’s senior management to conceal the $1.1 billion loss from federal regulators in the period from July to September. In addition to the conspiracy, he also pleaded guilty to concealing the losses over 12 years and to embezzling more than $500,000 from the bank for his own use, including the purchase of real estate.

He faces up to 90 years in jail. In addition, if fined, the minimum would be $3 million, prosecutors said.

The plea and Iguchi’s revelations are the latest developments in a widening scandal at Daiwa, which has been riddled with questions about inadequate disclosure that led to problems in its New York bond-trading office.

The Federal Reserve already has sanctioned Daiwa by forcing it to sharply scale back its New York trading operation, saying that Daiwa in the past lied to regulators and failed to make good on promises to reform a lax system of oversight. The loose oversight has been blamed for allowing Iguchi to conceal 30,000 unauthorized trades from regulators for 11 years.

Iguchi was arrested by federal authorities late last month on charges of falsifying records, and the U.S. Attorney’s office has said other employees are being investigated. But not other charges have been filed.

Daiwa also was criticized for waiting two months before telling U.S. authorities about Iguchi’s losses, which the bank said first came to light in July.

Regulators also are under fire. The Japanese Finance Ministry said it knew about Daiwa’s problems in August, but didn’t tell U.S. banking regulators until September. Also, the U.S. Fed’s failure to monitor the operations of Daiwa may have contributed to the bank’s huge losses in unauthorized bond trades, The New York Times reported Thursday.

Nearly two years before Daiwa Bank Ltd. announced the more than $1 billion in unauthorized trading, the president of the Federal Reserve Bank of New York warned a top Daiwa executive about the employee, the newspaper said.

William J. McDonough, the Fed president, ordered Daiwa to end the employee’s trading practices in 1993, and was assured by Daiwa that supervision would be tightened, the Times reported.

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