SMBC Nikko Fined 700 Million Yen over Market Manipulation

Jiji Press

15:56 JST, February 14, 2023

TOKYO (Jiji Press) — Tokyo District Court on Monday handed down a fine of ¥700 million and an additional penalty of some ¥4.4 billion to SMBC Nikko Securities Inc. over stock price manipulation.

The court, presided by Judge Daisuke Kanda, also sentenced former SMBC Nikko Executive Officer Teruya Sugino, 57, to 18 months’ imprisonment, suspended for three years, for violating the financial instruments and exchange law.

Prosecutors had sought a fine of ¥1 billion and an additional penalty of about ¥4.4 billion for the brokerage unit of Sumitomo Mitsui Financial Group Inc., and a prison sentence of 18 months, without suspension, for Sugino.

A total of six people were indicted on suspicion of violating the law over the market manipulation, and trials were held first for Sugino and SMBC Nikko as they had admitted to the charges.

Finding that multiple SMBC Nikko executives were involved in illegal price manipulation for a total of 10 issues, the judge said, “As the gatekeeper of the market, they were in a position to ensure the fairness of transactions and the protection of investors, so the level of condemnation is even greater.”

He noted that the so-called block offer scheme, in which brokerage houses buy large amounts of shares from major shareholders and sell them to investors in off-hours trading, had the structural issue of spurring short selling by investors.

“While effective countermeasures were not taken, crimes were committed repeatedly with priority placed on gaining immediate profits,” Kanda said. Approximately ¥4.4 billion was used to stabilize stock prices, which led to profits of close to ¥1.1 billion, the judge said.

“[SMBC Nikko’s] function of monitoring and preventing illegal acts has lost substance, and there were deep-rooted issues in its corporate culture, making the company highly liable for neglecting its oversight responsibility,” the judge said regarding the firm’s criminal responsibility.

Meanwhile, the court took into consideration the fact that SMBC Nikko has taken steps to prevent recurrences, and that it has been slapped with a business suspension order by the Financial Services Agency and a ¥300 million fine by the Tokyo Stock Exchange.

According to the ruling, Sugino conspired with those including a subordinate, Makoto Yamada, 45, former head of SMBC Nikko’s equity division, to place orders to buy 320,000 Koito Manufacturing Co. shares with funds at the securities firm in December 2019 to prop up the automotive lighting manufacturer’s stock price. The transaction was carried out in relation to block offer trades.

In the roughly 16-month period from the same month, the defendants are believed to have placed buy orders for a total of some 1.67 million shares in 10 issues in an attempt to stabilize their market prices.

SMBC Nikko was indicted under the so-called dual liability rule, which holds the employer responsible for illegal acts by its employees.

SMBC Nikko released a statement Monday apologizing for the incident, saying that it takes the rulings seriously and will “steadily implement steps for improvement and recurrence prevention to regain trust.”

“It is highly regrettable that unfair trade practices had been conducted,” Japan’s Chief Cabinet Secretary Hirokazu Matsuno said regarding the rulings at a press conference Monday.

“I want [SMBC Nikko] to continue working on drastically improving its operations,” the top government spokesman said.