* 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 throughout)
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 reports.
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 Japanese clients.
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 Friday.
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 Chris Gallagher)