U.S. Regulators Shut Down Daiwa; More Charges Filed
DAVID E. KALISH
Nov. 02, 1995
NEW YORK (AP) _ Federal authorities ordered Daiwa Bank Ltd. to shut down its U.S. operations, accusing the Japanese bank and senior managers of directing a criminal cover-up of $1.1 billion in bond trading losses.
It was the biggest U.S. criminal action against a foreign bank since authorities charged the Bank of Credit & Commerce International in 1991 with recording nonexistent loans and deposits to inflate its assets and profits.
Authorities say the cover-up, which the bank initially blamed on one rogue New York trader, actually stretched up the management ladder.
``At every turn, impermissible, unlawful options were selected by a number of officials, and that we can't tolerate,'' U.S. Attorney Mary Jo White said.
The bank continued to portray itself as the victim of Toshihide Iguchi, a senior bond trader in its New York office, who last month pleaded guilty to hiding the $1.1 billion loss over 12 years.
``It is clear that the bank remains the sole victim of Mr. Iguchi's wrongdoing,'' said Takashi Kaiho, Daiwa Bank's new president, appointed after last month's resignation of several top managers. ``Not a single customer of the bank suffered any financial loss.''
But prosecutors said customers, including some in the United States, did lose money. They were not identified.
The bank is primarily a lender to multinational corporations and engages in trading and other capital markets activities. It does not accept retail deposits.
Iguchi, executive vice president at the New York branch, confessed to superiors in July that he lost $1.1 billion from 30,000 unauthorized trades in U.S. Treasury securities.
Top Daiwa officials did not inform U.S. regulators; they filed a quarterly report with the Federal Reserve claiming that the bank still held $600 million in Treasury bonds _ bonds they knew Iguchi had sold to cover losses.
Not until September did the bank report the losses to U.S. authorities, and it announced them publicly later that month.
Iguchi told a federal judge last month that his superiors directed him to keep covering up his losses in the two months before the bank disclosed the scandal Sept. 25. He pleaded guilty to forging bank records and embezzlement to hide his spectacular losses.
Prosecutors accuse senior Daiwa executives of meeting with Iguchi at a Manhattan hotel in July to discuss how he could hide his losses. They agreed that Iguchi should sell securities and forge bank records to continue the cover-up, the indictment said.
The former manager of Daiwa's New York branch, Masahiro Tsuda, was indicted Thursday, along with the bank. The indictment said others, who were not named, were also involved.
Other than BCCI, international banking experts couldn't recall an instance where U.S. authorities shut down a foreign bank for lying.
``It could be unprecedented,'' said John B. Cairns, partner and international banking expert at Willkie Farr & Gallagher, a New York law firm.
Federal and state banking regulators said Daiwa, based in Osaka, Japan, signed a consent order agreeing to end its activities in 11 states by Feb. 2. There is the possibility of an extension to permit an orderly departure.
With assets of $182 billion, Daiwa is the 10th largest among Japan's 11 top commercial banks. Its U.S. operations include an asset management business, a commercial lending operation and other banking services.
Daiwa said it was not admitting wrongdoing by agreeing to shut down its operations in Atlanta, Baltimore, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, Minneapolis, New York, Philadelphia, Pittsburgh, St. Louis, San Francisco, and Tampa. It will also shut down Daiwa Bank Trust Co., its wholly owned subsidiary in New York.
Daiwa could face more than $1 billion in fines if convicted of charges including obstructing examinations of its branches, making false statements to federal agencies and forging records.