2/87 CHURNING, SECURITIES FRAUD, STOCK MANIPULATION

In an unprecedented decision, the Tokyo District Court has found Nomura Securities, the largest securities firm in Japan, guilty of violating its fiduciary duty to its client when its broker made unauthorized trades in the account of the client. An Indian national, a long time resident of Tokyo, was awarded 17 million yen in damages on his claim for 53 million in damages. The plaintiff had fortunately tape-recorded Nomura employees admitting that they had made the unauthorized transactions. The case is expected to lead to many similar complaints as the practices complained about in the suit are widespread among Japanese securities companies. This kind of churning, while illegal, is widespread in Japan and finance regulatory officials tend to ignore the situation. This case is believed to be the first such victory by an investor in Japan. Nomura spokespersons claim it is the first such victory against Nomura. Nevertheless, even the victorious lawyer for the plaintiff believes that the system is so stacked against individual investors that if his client had not had a tape recording of the Nomura employees admitting improper activities, they never would have won the case.

A group of investors led by an investor sentenced to prison for two years for stock price manipulation have gathered a significant portion of the outstanding shares of a company listed on the second section of the Osaka Stock Exchange. This is the same company whose shares had been manipulated by the investor sent to prison. The group now has over 22% of the company's shares. So alarmed is corporate management that they are buying up other shares. Accordingly the number of shareholders has fallen below the minimum required for the company to maintain its listing on the stock exchange.

THE JAPAN LAWLETTER, February, 1987. By Roderick Seeman