Ex-SMBC Banker Arrested Amid Insider Trading Probe

A former SMBC Nikko Securities Inc. executive was arrested yesterday, becoming the first banker from a major Japanese brokerage to be detained for suspected insider trading since 2008.

The Securities and Exchange Surveillance Commission and Yokohama city prosecutors are investigating former SMBC Nikko executive Hiroyoshi Yoshioka, 50, and three other people, the financial watchdog said in a statement.

Japanese regulators are cracking down on insider trading after recent disclosures of leaked information have eroded confidence in the nation’s capital markets. Nomura Holdings Inc. (8604), the country’s largest brokerage, this month acknowledged its employees’ role in providing confidential data ahead of share sales that the investment bank managed in 2010.

“We are very sorry and we take very seriously that our former executive was arrested,” SMBC Nikko President Eiji Watanabe said at a news conference in Tokyo yesterday. “This should never happen.”

Watanabe said Yoshioka denied that he was involved in insider transactions while he was employed at SMBC Nikko, a unit of Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-largest bank by market value.

Vantec Shares

Yoshioka, who began working for SMBC Nikko on secondment from Tokyo-based Sumitomo Mitsui’s banking unit in October 2009, was the deputy head of investment banking, according to the brokerage’s website. He went back to Sumitomo Mitsui Banking Corp. in May and the lender fired him, two people familiar with the matter said on June 21.

The banker obtained information that Hitachi Transport System Ltd. (9086) was planning a takeover bid for Vantec Corp., according to the SESC. He and the three other individuals then conspired to buy 20 shares in Vantec for 2.4 million yen ($30,000) before the announcement of the purchase in 2011, the watchdog said.

Yoshioka is the first banker to be arrested on suspicion of insider trading since a former employee of Nomura in April 2008. He and the others face as many as five years in prison and maximum fines of 5 million yen if they’re found guilty, the SESC said in the statement.

Shares of Sumitomo Mitsui fell 0.5 percent to 2,488 yen at the midday break in Tokyo trading. They have risen 16 percent this year, compared with a 2.8 percent gain in the Nikkei 225 Stock Average. (NKY)

Internal Investigation

The bank is fully cooperating with local authorities in the investigation, according to its statement. SMBC Nikko formed an outside committee to investigate the insider trading case, Watanabe said yesterday at the briefing. SMBC will also set up an independent panel to probe the matter, Yujiro Ito, executive at SMBC, said yesterday.

“It’s quite regrettable,” Financial Services Minister Tadahiro Matsushita said today in response to Yoshioka’s arrest. Insider trading has “persistently been discussed at the Diet and press conferences in the three weeks since I took this post. I am looking at this very seriously.”

Matsushita’s Financial Services Agency and SESC are examining insider trading ahead of share sales by companies including Nippon Sheet Glass Co., Inpex Corp. (1605), Tokyo Electric Power Co. and Mizuho Financial Group Inc. (8411) in 2010.

Underwriter Probe

The Nikkei 225 has lost 14 percent since late March, when the commission began finding that the leaks came from the underwriters of the stock offerings.

SMBC Nikko has been penalized for a separate incident. The FSA ordered the brokerage in April to improve its business after 23 sales staff were determined to have disclosed information to 34 clients before an unidentified company’s announcement of an equity offering.

Nomura said on June 8 that it was the unidentified underwriter whose employees were revealed by the SESC to have provided non-public information on the stock offerings by Inpex, Mizuho and Tokyo Electric.

The SESC found that an employee of JPMorgan Chase & Co. (JPM) gave information on Nippon Sheet’s stock sale, according to two people with knowledge of the matter. New York-based JPMorgan said on May 29 that it’s “cooperating fully” with Japanese authorities.

To contact the reporters on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net; Shigeru Sato in Tokyo at ssato10@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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