AIJ Investment Advisors Co. President Kazuhiko Asakawa said he ordered the falsification of fund performance reports in the hope the Japanese asset manager could recoup losses that may be more than $1 billion.
Admitting for the first time that AIJ had disguised losses, Asakawa told a Japanese parliamentary committee that he can’t explain how investor funds will be repaid. He apologized to clients and the securities investment community.
The losses have prompted the review of 265 asset managers nationwide, and last week AIJ’s offices were raided and its registration revoked. Securities regulators say Asakawa and Shigeko Takahashi, another director, conspired to conceal trading losses to attract pension funds, a scandal that has weakened confidence in corporate governance after camera maker Olympus Corp. admitted last year to a 13-year cover-up of losses.
“I was the one who ordered to fabricate the reports and Ms. Takahashi was the one that created the reports,” Asakawa told the committee, making his first appearance following the firm’s suspension in February. “I wanted to recoup the losses I made. My duty now is to return the funds as much as possible to my clients.”
Lawmakers called for further questioning of Asakawa in front of the country’s Diet, saying today’s answers weren’t sufficient. Asakawa had initially declined a request to appear before the parliamentary committee.
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 Securities and Exchange Surveillance Commission said last week. AIJ’s clients included 92 pension funds, according to the SESC. Most were small to mid-sized Japanese retirement plans that strived to close funding gaps created by low bond yields and two decades of slumping stocks.
Regulators on March 23 searched AIJ’s Tokyo headquarters and withdrew its registration. They also 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.
Asakawa had an annual salary of 70 million yen, while Takahashi was paid about 36 million yen a year, he said, adding the pay was based on the fund’s actual earnings and not inflated numbers.
ITM Founder Apologizes
Hideaki Nishimura, founder of ITM, also apologized before lawmakers for the scandal, adding that his firm had limited information on AIJ. Nishimura will cooperate with regulators and considers himself a victim, although his firm was responsible for marketing the funds, he said. Asakawa said the false reports were passed on to ITM.
Nishimura said he never doubted the numbers given by AIJ because the net asset value provided by the asset manager and that from HSBC Holdings Plc matched. Bank of Bermuda, a unit of HSBC, was listed as the fund administrator in an undated 13-page document in Japanese obtained by Bloomberg News. Margrit Chang, a Hong Kong-based spokeswoman for HSBC, declined to comment.
The SESC said last week it may seek a criminal probe into AIJ. Convictions following any criminal proceedings would involve a maximum three years in prison or a fine of as much as 3 million yen, or both, the SESC said in a statement last week.
Asakawa, a former Nomura Holdings Inc. manager, steered AIJ’s derivatives trading, which centered on Nikkei 225 options and Japanese government bond futures, the SESC said last week. Wrong-way bets on bond interest rates fueled the losses, while some of the instruments were traded through an unidentified brokerage firm in Singapore, the SESC findings showed. There are no hidden funds overseas, Asakawa said today.
Isao Ishiyama, a former employee of the Social Insurance Agency who recommended AIJ’s investments to pension clients, was among those summoned to speak before the lower house financial committee to discuss AIJ’s losses. Ishiyama, who set up his own consulting firm, Tokyo Pension Research Institute, said he didn’t doubt the firm’s numbers and that he also was a victim.
Takashi Nonaka, chairman of the Trust Companies Association of Japan and Mizuho Trust & Banking Co. chief executive officer, summoned by the committee to explain trust banks’ involvement with AIJ, said the bank didn’t see any discrepancies with what was presented by the brokerage.
The industry is considering how trust banks, who oversee money from pension managers, will be able to get more information on the asset values of the investments, Nonaka said.
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