* SESC says MRI inappropriately managed clients' acccounts
* Regulators have stepped up checks of asset managers
* Investors chasing higher returns amid low interest rates
(Recasts with regulators' announcement; adds comments, details
By Noriyuki Hirata and Chikafumi Hodo
TOKYO, April 26 Japanese regulators have
stripped U.S.-based MRI International Inc of its registration as
an asset manager and may pursue criminal charges against the
firm, accusing it of mismanaging client funds and falsifying
The second such scandal in Japan in a year highlights the
risks facing Japanese investors as they chase returns amid
rock-bottom interest rates, and serves as a reminder of the need
for them to better vet asset managers advertising yields
consistently fatter than the norm.
Regulators have beefed up their checks of asset managers in
the wake of a scandal last year in which Tokyo-based AIJ
Investment Advisors was found to have covered up losses
involving $1.3 billion of pension fund money.
The Securities Exchange and Surveillance Commission (SESC)
said on Friday that it was investigating Las Vegas-based MRI
International and found that MRI had failed to appropriately
manage its clients' acccounts.
It said that MRI had failed to direct new money from
investors into its financial products, and instead used those
funds to pay dividends and redemption fees for principal and
interest. MRI also failed to deliver payments on time to
clients, and did not report to them on the status of their
accounts, the SESC said.
It may seek criminal charges against the investment company
after the probe, an SESC official said.
The SESC has recommended that its parent, the Financial
Services Agency, impose penalties on MRI International. The FSA
said it had cancelled MRI's registration in Japan.
According to MRI International's website, the firm had
collected 136.5 billion yen ($1.4 billion) from about 8,700
No one at MRI could be reached for comment on Friday.
The scandal comes as investors rush back into Japanese
stocks, encouraged by the economic policies of Prime Minister
Shinzo Abe aimed at stoking inflation. Tokyo's benchmark Nikkei
average has risen by a third in the year to date.
Benchmark Japanese government bond yields hit a record low
earlier this month and were yielding just 0.590 percent on
On its website, MRI International advertised annual returns
of 6 to 8.5 percent from its business of collecting on account
receivables it purchases at a discount from medical institutions
in the United States.
MRI touted the investment scheme as a safe way to earn high
returns in Japan's low interest rate environment. Investment
principal is protected in an escrow account and backed up by
local safety-net regulations, MRI said on its website.
"Even though Japanese stocks have been rising recently,
investors tend to prefer financial instruments with a low
correlation to equities," said Noriyuki Kawana, chairman and
chief executive at BFC Asset Management.
"To investors like that a return of 6 to 8 percent is
attractive. But they need to be careful," Kawana said.
Hiroshi Murano, an elderly investor, came to MRI's Akasaka
office in central Tokyo on Friday to ask about the situation.
But MRI staff were not present, while Japanese inspectors were
in the office, according to a security guard.
"I put in most of my retirement allowance. My son first
started buying and my wife is also investing in this," he said.
(Additional reporting by Nathan Layne and Emi Emoto; Editing by