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Japan's Finance Minister Quits to Accept Blame for Scandal : Securities: Ryutaro Hashimoto takes responsibility for the government's failure to prevent the brokerage industry from engaging in abuses.

October 03, 1991|From Reuter

TOKYO — Japanese Finance Minister Ryutaro Hashimoto tendered his resignation to Prime Minister Toshiki Kaifu today to take responsibility for the government's failure to supervise the securities industry effectively.

Hashimoto was asked to stay on until after International Monetary Fund and other meetings in Bangkok this month, Japan's NHK television said.

The move came as Japan's Parliament passed a bill today to tighten the Securities and Exchange Law in an effort to prevent a recurrence of the brokerage scandals that have rocked the stock market.

The Upper House gave final approval to a Finance Ministry text approved last week by the Lower House. Ministry officials said the revision would take effect within three months.

Having steered through the reform, Hashimoto then tendered his resignation.

Since June, more than 20 top Japanese brokerages have acknowledged improperly compensating favored clients for their investment losses.

The new law makes it a criminal offense for brokers and banks to make up customers' losses, punishable by up to one year in prison or a maximum $7,500 fine.

Penalties imposed by the Finance Ministry on the nation's Big Four brokerages--Nomura Securities Co., Nikko Securities Co., Daiwa Securities Co. and Yamaichi Securities Co.--for recent improprieties amounted to an order to limit some trades for four business days and a "request" not to underwrite government debt for a month.

The revised Securities and Exchange Law would also penalize clients who request and receive pay-backs from banks and brokers.

In the future they will risk up to six months in jail or a maximum fine of $3,760. Pay-backs would be seized.

The new legislation also bans the use of discretionary investment accounts by which customers entrust investment decisions to brokers.

These accounts are seen as the root of the improper compensation problem because they allowed investors to disclaim responsibility for their own investment risks.

In addition to the securities law revision, the Finance Ministry officials said, a Justice Ministry panel is working out criteria for imposing heavier fines on companies guilty of financial wrongdoing.

Japanese brokerages admitted that they had improperly compensated elite clients for nearly $1.63 billion in investment losses in the 30 months up to March, 1990, while giving no aid to smaller, private losers.

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