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How Nomura Took Care of Its Best Customers : Securities: The Japanese broker got a gangster boss and well-heeled clients into Tokyu shares early, investigators say. It pitched to others late--just before the stock fell.


TOKYO — As a deepening securities scandal continues to rock Japan, investigators are unearthing details of a stock scam that offers a rare glimpse of the shady back alleys behind Japan's stock exchanges--how Japan's top brokerage houses appear to play the Tokyo stock market as if they were running a private casino with the odds heavily favoring the house.

The most publicized part of the scandal has been the nearly $500 million that Japan's top four brokerage houses paid to cover the market losses of their best customers, giving the rich clear favoritism over other customers.

But what has struck far more deeply into the heart of the Japanese Establishment--and what insiders believe played a key role in forcing the recent resignations of the presidents of Nomura Securities and Nikko Securities--are revelations that the brokers had widespread dealings with Susumu Ishii, former boss of the Inagawakai, one of Japan's largest criminal gangs.

Police are investigating the ties among Nomura, Nikko and Ishii--relationships that emerged in the course of an investigation into Ishii's investments in America, in which Ishii indirectly used Prescott Bush, President Bush's elder brother, as an adviser. The Ministry of Finance, which is expected to discipline the brokers for the gangland ties, is also looking into whether the brokers were involved in manipulating the shares of Tokyu Corp., a railroad company with $3 billion in sales.

Although authorities say they won't publicly reveal details until their investigations are complete, enough has emerged about the case to piece together a disturbing picture.

The story begins with the death on March 20, 1989, of Noboru Goto, the powerful and charismatic chairman of Tokyu Corp. Goto's strong personal influence, including a long-standing friendship with former Prime Minister Yasuhiro Nakasone, enabled him to keep together the dispersed interests of the Tokyu group--which include 362 affiliated companies with $21 billion in sales--in spite of the family's small stake.

But a trader at a major American brokerage firm said Goto's death made the company a good kamo , or duck--a target for speculators and raiders.

About the time of Goto's death, Yoshinori Watanabe became head of the Osaka-based Yamaguchi Gumi, Japan's largest gangster group, with support from Ishii, boss of the Tokyo-area Inagawakai gang, according to the Mainichi, a major daily newspaper. To give thanks and to cement the alliance, Watanabe gave Ishii several million shares of Tokyu Corp.

Ishii had long been speculating in stocks. He had accounts at Nikko and at Nomura under several false names, according to press reports quoting Ministry of Finance officials.

Ishii set out to build his position in Tokyu. Although Ishii's motives are unclear, Hiroshi Okumura, an economist at Ryukoku University and an expert on Japan's stock market, believes that Ishii planned to "greenmail" Tokyu--intimidate the company into buying back the shares, a common strategy of gangs.

On April 11, a Nikko securities broker visited Ishii at his brick mansion in Yokosuka, outside Tokyo. It is unclear what conversations took place (Nikko says it was a routine visit), but the broker introduced Ishii to officials of a Nikko subsidiary that one week later lent Ishii $145 million to buy Tokyu shares.

A couple of months later, in June of 1989, Ishii sold memberships in a golf course he owned to 12 companies for $260 million. This is one of many unsolved mysteries in the case.

Nomura and Nikko were among corporations that paid $14 million each for membership certificates that investigators believe had no real value. Nomura spokesman Michio Katsumata says that the memberships represented a loan and that Nomura's subsidiary was told that it would get its money back in a year or so, with 25% interest.

Ishii poured the money from his golf membership sales into more Tokyu shares. The shares, which he initially bought at $11.60 apiece, began to climb. Ishii eventually owned close to 30 million shares, of which about two-thirds were purchased from Nomura and Nikko.

Those holdings represent a small share of the stock. But in Japan, where only limited quantities of a given issue are ever traded, shifts in relatively small holdings can move the market.

By the fall of 1989, other speculator groups were buying Tokyu shares, brokers say. Typically, such groups include politicians, who receive campaign money in exchange for favors. While rumors are swirling about which politicians may have been involved in the Tokyu scandal, no one has been fingered.

The speculator groups buy shares in a single stock in which they expect activity, push the price up and bail out with their profits. By early October, Tokyu shares were trading at $14.50, 20% higher than when Ishii began buying.

After selling millions of shares to gangsters and other speculators, Nomura turned to its more legitimate clients. On Oct. 18, 1989, it told its largest clients that Tokyu was a sure bet.

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