* SESC says to impose $184,500 fine against First New York
* Marks first penalty against overseas fund in insider probe
* Japan watchdog coordinated with U.S. SEC in the case
* Case is third in which Nomura employee leaked information
By Nathan Layne and Noriyuki Hirata
TOKYO, June 8 Japan's securities regulator on
Friday recommended a fine of more than $180,000 against First
New York Securities for insider trading in a 2010 share offering
by Tokyo Electric Power Co, the first foreign firm to face such
a penalty in a widening probe.
The case is also the third linked to Nomura Holdings
, which was the sole underwriter on Tokyo Electric's
$6 billion stock offering. As in two other cases, an
employee at Japan's largest broker was the source of the leak.
The penalty proposed against First New York is the largest
since the Securities and Exchange Surveillance Commission (SESC)
launched an industry-wide probe in 2010 aimed at stamping out
insider trading ahead of share offerings, a widespread practice
that has tainted the reputation of Japan's financial markets.
The Japanese securities watchdog said it had worked with the
U.S. Securities and Exchange Commission (SEC) to gather evidence
against First New York, a broker-dealer based in New York with
more than 200 traders on staff, according to its web site. The
company did not return a call seeking comment.
While overseas funds have been a key target of the
two-year-long investigation, they had until now eluded the SESC.
In three other cases the investors implicated for insider
trading were domestic asset management firms.
"Overseas investors count for a large portion of the
Japanese market, they are an important component of the market.
But when there is unfair trading in the market as the regulator
we can and will work to punish that behaviour," an SESC
official, who asked not be identified, told a news conference.
The SESC sought a 14.68 million yen ($184,500) fine against
First New York, roughly twice the profit it gained from taking a
short position on Tokyo Electric one day before the offering was
announced, and then buying the stock back at a lower price.
The fine was much higher than in the three other cases
brought since March, in which token penalties ranging from
50,000 yen to 130,000 yen were meted out because, unlike First
New York, those funds were not trading on their own account.
The SESC said a sales staff member at the underwriter passed
on word of the Tokyo Electric share offering to a trader at
First New York via a director of a consulting firm which it did
not identify. The director also took out a short position, the
SESC said, and was therefore fined 60,000 yen.
The Tokyo Electric case will add to doubts about the
effectiveness of the "Chinese Wall" at Nomura that is supposed
to keep confidential information from the underwriting
department from ever reaching sales.
It will also raise the chances that Nomura will face
sanctions - ranging from an order to improve compliance to a
suspension of some operations - as the SESC concludes an on-site
investigation of the broker launched in April.
Nomura for the first time on Friday acknowledged publicly
that its employees were the sources of leaked information in
three cases. In addition to Tokyo Electric, the other two were
offerings by energy firm Inpex and lender Mizuho
Financial Group, both of which were already made public
by the regulator without naming the broker involved.
"Nomura expresses its regret concerning the findings that
non-public information was received from Nomura employees in
such cases and we sincerely apologise for the trouble this has
caused," the broker said in a statement.
Nomura added that it expected the results of an
investigation it launched to run in parallel with the SESC's
probe to be finished this month. The broker's investigation is
being carried out by a team of external lawyers.
Last week, Nomura replaced the head of institutional sales
at its core securities unit. A source with knowledge of the
matter said Kenichi Ishitomi had been asked to relinquish his
post to focus on cooperating with the SESC probe.
Separately, Sumitomo Mitsui Trust Holdings, whose
asset management arm has been fined twice for insider trading,
said on Friday that it had fired the two fund managers
implicated in the probe.
A third-party panel set up by Sumitomo to investigate the
issue said in its report on Friday that the insider trading
occurred in part due to the cosy relationship formed with
officials at a securities company. The report did not name the
securities company, but sources with direct knowledge of the
matter have previously identified it as Nomura.
The fund manger who was tipped off about Mizuho's share
issue was found to have been wined and dined on at least 39
occasions in a period of less than a year to the tune of about
890,000 yen from the securities firm officials, the report said.
The manager also received gifts worth 320,000 yen.