Two directors of AIJ Investment Advisors Co., the Japanese investment firm suspected of hiding more than $1 billion of losses on pension money, may face a criminal probe for their role in the case, regulators said.
AIJ President Kazuhiko Asakawa, 59, and director Shigeko Takahashi, 52, allegedly conspired to conceal trading losses and fabricate reports on the assets managed to attract pension funds, the Securities and Exchange Surveillance Commission said in Tokyo today. The firm oversaw 145.8 billion yen ($1.8 billion) of clients’ money and lost 109.2 billion yen from derivatives trades directed by Asakawa over nine years, the SESC said.
The case has spurred authorities to conduct checks on 265 Japanese fund managers amid growing concerns that retirement assets are at risk in a country where more than a fifth of the population is over 65. Corporate Japan has been tainted by recent scandals including Olympus Corp.’s covering up of losses.
Regulators today searched AIJ’s Tokyo headquarters and revoked its registration. They ordered brokerage ITM Securities Co. to halt business for six months for allegedly selling the funds with the knowledge that reports of their value were false.
AIJ’s clients included 84 pension funds representing 880,000 workers ranging from taxi drivers to medical practitioners. Nihon Unisys Ltd. (8056), a computer software developer, said today that it will book a 5.5 billion yen charge on losses from investments with the firm. Advantest Corp. (6857), a maker of memory chip testers, and Yaskawa Electric Corp. (6506), an industrial robot maker, are among companies that put pension money with AIJ.
Asakawa steered AIJ’s derivatives trading, which centered on Nikkei 225 options and Japanese government bond futures, the SESC said. Wrong-way bets on bond interest rates fueled the losses, an SESC official said at a briefing today, speaking on condition of anonymity, citing the commission’s policy. Some of the instruments were traded through an unidentified brokerage firm in Singapore, the SESC said.
Assets remaining at AIJ include 8.1 billion yen in cash held in Japan and Hong Kong, the SESC said. AIJ purported to manage 209 billion yen in a fund as of March 2011, when its true assets amounted to 25.1 billion yen, according to figures from an unnamed custodian, the commission said.
Regulators are probing whether Asakawa hid money in secret bank accounts, a government official with knowledge of the matter said yesterday.
Two phone calls to AIJ’s office in Tokyo today were directed to an automated recording that didn’t take messages. Efforts by Bloomberg News to locate Asakawa and Takahashi at their Tokyo addresses have been unsuccessful since AIJ was suspended a month ago.
Convictions following any criminal proceedings would involve a maximum three years in prison or a fine of up to 3 million yen, or both, the SESC said in a statement.
AIJ and ITM gave false reports to at least 66 pensions, the commission said. Through affiliates, AIJ owns about 80 percent of ITM, which is located in the same building, the SESC said.
“A six-month suspension sounds a bit severe, although I haven’t confirmed such an administrative order yet,” Yasuo Tsuneyoshi, a manager of ITM’s planning department, said by telephone today. “ITM has never conspired with AIJ.”
State broadcaster NHK today showed video of at least a dozen SESC officials entering AIJ’s office building in Tokyo’s Nihonbashi district, surrounded by press photographers. Plans for the inspection were leaked to local media days earlier.
The case has raised the ire of lawmakers, whose requests to speak in parliament with Asakawa, a former Nomura Holdings Inc. branch manager, were rebuffed.
Japanese corporate pension funds have been seeking alternative investments to stocks and bonds to bolster returns. Eighty-seven percent of corporate pensions under the nation’s employees’ retirement fund system target a 5.5 percent annual return, health ministry data show, even as benchmark interest rates have been stuck close to zero since the 1990s and the Nikkei 225 Stock Average (NKY) is about a quarter of its 1989 peak.
AIJ has said its Cayman Island-registered AIM Millennium fund had annualized returns of more than 14 percent and returned 241 percent since it started in May 2002, according to an October 2011 newsletter to investors.
Japan has the world’s second-biggest pension market, with assets of $3.47 trillion, after the U.S., which has $15.27 trillion, according to Towers Watson & Co.’s 2011 Global Pension Asset Study. Of the Japanese total, about 80 trillion yen is in corporate pensions, according to data from the health ministry.
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