June 8, 2012 / 8:40 AM / 6 years ago

UPDATE 2-First New York faces fine over Japan insider trading

* SESC says to impose $184,500 fine against First New York

* Marks first penalty against overseas fund in insider probe

* Japan watchdog coordinated with U.S. SEC in the case

By Nathan Layne and Noriyuki Hirata

TOKYO, June 8 (Reuters) - Japan’s securities regulator said on Friday it had recommended a fine of more than $180,000 against First New York Securities for insider trading in a 2010 public share offering by Tokyo Electric Power Co.

The penalty proposed to the Financial Services Agency is the first against an overseas fund since the Securities and Exchange Surveillance Commission (SESC) launched a series of probes in 2010 to stamp out insider trading ahead of public share sales.

“Overseas investors count for a large portion of the Japanese market, they are an important component of the market. But when there is unfair trading in the market as regulator we can and will work to punish that behaviour,” an SESC official, who asked not be identified, told a news conference.

The Japanese securities watchdog said it had worked with the U.S. Securities and Exchange Commission (SEC) on First New York’s case, although the official declined to say exactly when they began cooperating.

JP Morgan & Chase is the only other foreign entity that has been implicated in the insider trading investigation so far. Investigators found that a JP Morgan salesman leaked information on a 2010 share offering by Nippon Sheet Glass to a Tokyo-based fund, sources have said.

JP Morgan, which has not been named as a target of investigation and may not face penalties, has said Japanese regulators had not found any “organizational” involvement in the improper trades.

The securities watchdog has recommended First New York be slapped with a penalty of 14.68 million yen ($184,500).


The Tokyo Electric share offering, announced in September 2010, was controversial even at the time, with some analysts suggesting that a sharp sell-off in its shares suggested insider trading.

Shares in the utility, which is now being nationalised as a result of the high costs of cleaning up after last year’s Fukushima nuclear disaster, fell almost 13 percent in the two weeks before the share offering was announced.

Tepco raised $5.8 billion in the deal to finance investment in nuclear power and expansion plans in overseas gas and nuclear projects.

The penalty on First New York was more serious than other cases as the U.S.-based proprietary trading firm traded on its own account, while other cases involved trading on behalf of investor clients.

In one recent case, a Sumitomo Mitsui unit was fined 50,000 yen for an insider trading infraction.

The latest case also mark the third time Japan’s top investment bank Nomura Holdings has been linked to the insider trading probe.

The SESC did not identify Nomura, but said an employee of the underwriter was the source of the leak, using a consultant firm. Nomura was the lead underwriter on the Tokyo Electric offering.

First New York Securities could not be reached for comment. A Nomura spokeswoman said it continued to cooperate with the SESC in its investigation.

Last week, Nomura replaced the head of institutional sales at its core securities unit. A source with knowledge of the matter said Kenichi Ishitomi had been asked to relinquish his post to focus on cooperating with the SESC probe.

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