Nomura Apologizes for Involvement in Insider Trading Cases

Nomura Holdings Inc. (8604) apologized for its employees’ role in leaking information that was used for insider trading, confirming for the first time their involvement in three cases being examined by regulators.

“Nomura expresses its regret concerning the findings that non-public information was received from Nomura employees in such cases,” Japan’s largest brokerage said in a statement yesterday. Regulators earlier recommended fining First New York Securities LLC for trading shares in 2010 based on information that originated from Tokyo-based Nomura in one case.

The employees’ role in the incidents, which came to light as Japanese regulators began penalizing the companies that profited from the leaked information in March, may undermine Nomura’s credibility with investors. The news may also weigh on a stock that fell to its lowest in at least 37 years in November as profit plunged.

“We can’t deny that it could damage the firm’s reputation to some extent,” said Futoshi Sasaki, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s biggest bank. “Some Japanese companies considering giving a mandate to Nomura may choose other firms and its market share may fall.”

Shares of Nomura fell 2.2 percent to 268 yen yesterday before the company issued its statement.

Olympus Investigator

Nomura said it will complete an internal investigation by a group of outside lawyers by the end of June. The firm will “implement improvement measures and disciplinary action” in accordance with the result of the review and the Securities and Exchange Surveillance Commission’s inspection, it said.

It chose Hideki Nakagome, a former High Court chief justice, to lead the internal probe. Nakagome, who helped investigate Olympus Corp.’s accounting fraud, confirmed his appointment and declined to comment further. Keiko Sugai, a Tokyo-based Nomura spokeswoman, declined to comment on the appointment.

The SESC has refrained from identifying underwriters involved in its probe, focusing instead on recommending fines for the firms that traded on the information.

The commission proposed fining First New York Securities, a U.S. proprietary trading firm, 14.7 million yen ($185,000) for selling Tokyo Electric Power Co. (9501) shares with insider information before the utility’s 2010 share sale managed by Nomura. It’s the first time the Japanese regulator has sought a penalty for a foreign firm as part of its investigation.

Chuo Mitsui

“We were made aware of the Japanese regulators’ recommendation early this morning,” said Russell Sherman, a spokesman for First New York Securities. “We cannot comment on any ongoing regulatory action but we are cooperating fully with the inquiry.”

Nomura employees were involved in leaking information to Chuo Mitsui Asset Trust & Banking Co., a former unit of Sumitomo Mitsui Trust Holdings Inc. (8309), ahead of share sales in 2010, yesterday’s statement confirmed.

The SESC in March sought a 50,000 yen fine for Chuo Mitsui for using leaked information to trade shares of energy company Inpex Corp. (1605) Last month, the watchdog proposed fining Chuo Mitsui 80,000 yen for trading of Mizuho Financial Group Inc. (8411) shares before its equity offering, which was underwritten by Nomura.

Sumitomo Mitsui Trust dismissed two employees following an internal investigation, Chairman Hitoshi Tsunekage said at a news conference in Tokyo yesterday. Company executives will take temporary pay cuts in light of the cases, the Tokyo-based trust bank said in a statement.

A Chuo Mitsui fund manager was entertained 39 times by a Nomura salesperson over less than a year at a total cost of 890,000 yen, according to a report by Sumitomo Mitsui Trust’s third-party committee.

Separate Case

In a separate case excluding Nomura and Chuo Mitsui, the SESC last month recommended a 130,000 yen fine for Asuka Asset Management Co. over the trade of Nippon Sheet Glass Co. shares. The watchdog found that an employee of JPMorgan Chase & Co., which co-underwrote the 2010 offering, leaked the information to Asuka, according to two people with knowledge of the situation.

Nomura Chief Executive Officer Kenichi Watanabe oversaw a 60 percent decline in net income to 11.6 billion yen in the year ended March. Moody’s Investors Service cut Nomura’s credit rating to the lowest investment grade in March, saying global competition raises questions over its profitability.

Nomura is trimming $1.2 billion of costs that soared after it bought Lehman Brothers Holdings Inc.’s Asian and European businesses in an effort to expand worldwide.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editors responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net

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