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Taking No Vacations Helped Banker Disguise Pyramid Scheme, Lawyer Says

February 23, 1987

LOS ANGELES (AP) _ A Japanese banker accused of embezzling $44.9 million nearly got away with his five-year string of phony loans because he never took long vacations that would have allowed a replacement to detect the scheme, a bank attorney said.

The downfall of Hirotsugu Mizuno came after he was transferred to New York from his job as a manager of Mitsubishi Bank of California in Los Angeles. His successor quickly discovered the loan scam, authorities said.

Banking regulators urge bank officers to take two consecutive weeks vacations at least once a year so that irregularities can be detected.

″It’s not a statutory requirement, but we use all our influence to see that they do,″ California Banking Department spokesman Harry Doyle said Monday in San Francisco.

″We feel it is necessary to good internal controls, and if we see it isn’t being done, we criticize it,″ Doyle said.

The district attorney last week charged Mizuno with seven felony counts in the case. Prosecutors are seeking his extradition from Japan, but authorities and bank officials say they don’t know his whereabouts.

Mizuno, 44, was ordered back to Japan in late 1984 after the bank discovered the irregularities and Mizuno allegedly confessed to his superiors. He was subsequently fired from Mitsubishi Bank of California, a subsidiary of Mitsubishi Bank Ltd. of Japan, the world’s fourth largest.

″If he hadn’t been transferred, he just might have pulled this off,″ bank attorney Carl J. Bradshaw said.

According to prosecutors and a private bank investigation, Mizuno had arranged a number of fictitious loans over five years but had paid most of them back with interest when they came due, sometimes by taking out new loans.

Mizuno allegedly used the money to bet on horse races and play the stock market. He was notably unsuccessful at the track but did better with the stock market, the bank’s investigation found.

The amount of money the bank actually lost on the web of transactions is in dispute. The district attorney’s office variously puts the figure at $8 million or $4.9 million, with the latter the amount of a loss claim the bank filed with Aetna Casualty & Surety Co.

The bank and a special auditor it called in to handle this case put the loss at $130,000. It points out that it recovered $3 million in stock from brokers with whom Mizuno had been working, and says the Aetna claim wasn’t for embezzled funds but rather for interest never collected on those funds.

The downfall of Mizuno, a whiz-kid business graduate of Japan’s respected Keio University, came as a surprise because he was seen as a rising star in the banking community.

Bradshaw said there is little dishonesty in Japan or among Japanese executives, and with his outstanding credentials, Mizuno was unlikely to invite suspicion of wrongdoing among his colleagues.

Mizuno, described as hard-driving and ambitious, seldom took vacations of more than a few days, which colleagues ascribed to the Japanese culture that encourages executives to drive themselves.

According to a Mitsubishi bank report provided to the district attorney, Mizuno kept his private life to himself. It was known that he had a wife and two children. But colleagues had no idea of his proclivity to bet on horses and had only an inkling of his stock dealings because they sometimes would take calls from stockbrokers in his absence.

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