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Finance Minister Refuses Calls To Disclose Firms’ Favored Clients

July 25, 1991

TOKYO (AP) _ Japan’s finance minister on Thursday rejected calls that he disclose which clients of the country’s securities firms received more than $1 billion in compensation for investment losses.

Testifying at the start of a parliamentary hearing into the scandal, the minister, Ryutaro Hashimoto, also said he had once considered resigning to take responsibility.

″Quitting is not enough. Preventing a recurrence is my responsibility,″ he said.

The scandal centers on huge paybacks for stock losses to favored investors by Japan’s four largest brokerages - Nomura Securities, Daiwa Securities, Nikko Securities and Yamaichi Securities - and smaller firms. Nomura and Nikko also have been linked to shady deals with a former organized crime boss.

Nomura is under investigation by prosecutors on suspicion of manipulating the prices of a major railway company in which the ex-mobster invested heavily, a Justice Ministry official said at the hearing of the lower house Finance Committee.

The Tokyo Stock Exchange has said its investigation showed no conclusive evidence of manipulation.

Since the scandal broke last month, the Finance Ministry has come under intensifying criticism of lax supervision of stock trading practices.

While the payments were not illegal unless promised in advance, they violated ministry guidelines and infuriated smaller investors who did not receive such payments.

Before a packed committee meeting room, Hashimoto apologized for the ministry’s ″lack of supervision,″ but said as a public official he could not publicize the names of large investors who received paybacks.

″There is the issue of protecting privacy,″ said Nobuhiko Matsuno, head of the ministry’s securities division. ″In light of having to protect investors and the development of the nation’s economy, we do not wish to disclose the names.″

Ministry officials drew heckles from opposition legislators when they had to rely on whispered advice from aides to answer why disclosing the names would affect national interest.

Hashimoto said the securities firms should disclose the names themselves.

″The securities firms’ relationship of trust with clients is often stated ... but there is also the trust with individual investors,″ he said. ″Securities firms need to take initiative to win back the trust of the large number of individual investors.″

The ministry acknowledged for the first time that six smaller brokerages had reported $255.5 million in loss compensation payments to major customers. It did not name the companies.

The ″Big Four″ brokerages have told the ministry they compensated major clients $933.1 million between September 1988 and March 1990.

Ministry officials also restated their reluctance to set up an independent supervising body such as the U.S. Securities and Exchange Commission. Matsuno said his section in the ministry was no different from the SEC in scope of activities, although the U.S. body has more power to investigate.

Hashimoto said a proposal to revise securities laws to make all loss compensation illegal could be presented to Parliament as early as next month.

Even before it began, the hearing was the center of controversy because of the governing Liberal Democratic Party’s refusal to call officials of the brokerages to testify about the scandal.

Former Nomura Chairman Setsuya Tabuchi had expressed willingness to reveal all he knows about the scandal if summoned. The Liberal Democrats’ efforts to block his testimony has led to suggestions from the opposition that some prominent politicians may have been involved in the paybacks.

Tabuchi is one of three top executives at Nomura and Nikko who already have resigned because of the scandal. Hashimoto and other top ministry officials took pay cuts for three months and earlier ordered the four brokerage firms to curtail business for four days.

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