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Nikko Securities To Pay Penalty

August 27, 1998

WASHINGTON (AP) _ The U.S. division of Japan’s Nikko Securities Co. has agreed to pay a $2.5 million civil penalty to settle federal regulators’ charges that it violated securities recordkeeping laws.

In a civil complaint filed Thursday in federal court in Washington, the Securities and Exchange Commission alleged that Nikko’s Wall Street operation failed to comply with a May 1993 SEC order compelling the firm to refrain from such violations.

The SEC also alleged that Nikko failed to reasonably supervise its employees to prevent the recordkeeping violations. The market watchdog agency, which said it is continuing its investigation of the matter, censured Nikko’s Wall Street division.

In its settlement, in which Nikko neither admitted nor denied the SEC’s allegations, the company agreed to comply with the 1993 order.

Nikko’s U.S. chairman, Timothy E. Cronin, said in a statement that the company ``responded promptly and forcefully when it learned of improper activities by now-former employees, and the firm has cooperated completely and voluntarily with the SEC since we first informed them of this in June of 1995.″

General Counsel C. Evan Stewart said the settlement ``allows Nikko to go forward in the future confident that it is in compliance with applicable U.S. laws and regulations.″

The SEC also charged that three senior Nikko officials in New York _ former chairman and chief executive Masao Ebina, former president Tadao Osada and former senior vice president Toshiyuki Sagiuchi _ knew that the records were inaccurate but failed to correct them. The agency said the three ``willfully aided and abetted″ the violations.

Without admitting or denying the allegations, the three ex-officials agreed to refrain from future violations. The SEC barred them from working for a brokerage firm for six months and ordered each of them to pay a $50,000 civil penalty.

The SEC had alleged that from August to November 1994, Nikko improperly used an internal interest rate forecast to overstate the value of its mortgage-backed securities holdings in its records and in its reports to the New York Stock Exchange. The alleged overstatements reached $9.6 million in August 1994 and $17.5 million in October 1994, according to the SEC.

The company’s Wall Street operation sold the majority of the holdings in question in November 1994 to its London-based affiliate for $134 million _ an amount the SEC said was at least $17 million above the fair value.

In a separate action, the Japanese government in April temporarily banned Nikko’s parent company from trading stocks for its own account between April 10 and May 9 as punishment for its part in a bribery scandal.

Nikko President Masashi Kaneko had acknowledged the company’s involvement in funneling illegal funds to Shokei Arai, a 50-year-old bureaucrat-turned-politician.

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