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Daiwa Trader Enters Guilty Plea, Implicates Bosses : Securities: He accuses his managers of conspiring with him to hide losses, continue cover-up. Japanese bank denies it.

October 20, 1995|From Times Wire Services

NEW YORK — The central figure in a spectacular bond trading scandal at Daiwa Bank pleaded guilty Thursday in a stunning confession that accused senior bank management of conspiring with him to hide $1.1 billion in losses.

Toshihide Iguchi, appearing somber, calmly told a federal judge in lower Manhattan that he doctored bank records and made unauthorized trades to cover up mounting losses over a 12-year period at the Japanese bank's downtown New York office.

But his message was explosive. Reading from notes, he also accused at least two senior Daiwa managers of urging him to continue covering up the scheme in the last three months--after Iguchi confessed his hidden losses to Daiwa's president in July.

The fresh disclosure describes a scheme in which Iguchi did not act alone in covering up the huge losses and, in recent months, involved the cooperation and encouragement of top levels of Daiwa management.

Iguchi's assertions could cast a new credibility problem on the system of bank regulation in Japan, where cozy ties between regulators and banks have helped mask a litany of financial woes. Japanese banks are awash in $400 billion worth of bad loans.

Daiwa denied Iguchi's claim of a conspiracy by senior bank managers. The bank said it allowed him to continue trading while bank officials probed his story.

"We feared Iguchi might commit suicide or run away. So we allowed him to continue selling U.S. securities, two or three times up until September, to meet interest payments due. We wanted him to be cooperative as we verified the 30,000 unauthorized trades he made over the prior 11 years," the bank said through a spokesman at its Osaka headquarters.

Daiwa Bank's president, deputy president, managing director and the president of its New York-based asset-management arm all recently announced plans to resign. Daiwa's chairman said he will leave in March.

U.S. authorities say they were not told of the bond trading scheme until late last month.

Iguchi told Judge Michael Mukasey he has agreed to cooperate with prosecutors in the case.

Iguchi said the scheme began in 1983 when he tried to hide a $50,000 loss by trading other U.S. Treasury securities without authorization. But instead the losses mounted. Over the years, his cover-up became more elaborate as he falsified bookkeeping records to hide his missteps, he said.

Iguchi said regulators had been on his trail since 1989, when the New York State Banking Department began examining the finances of Daiwa's downtown New York office.

He said that in 1989 and 1992, bank management temporarily moved some downtown traders to Daiwa's mid-town Manhattan office to keep regulators from discovering the bank's lax oversight system, which allowed him to continue concealing the losses.

Iguchi, 44, said he confessed his scheme in a letter to Daiwa President Akira Fujita in July because he was afraid that the hidden losses combined with a downturn in the Japanese economy could financially threaten the bank.

After his admission, he said, one senior member of the bank "told me to continue concealing the losses." Another "gave me the impression that the original plan for them was to announce this sometime in November in some fashion," Iguchi said.

No one else has been charged in the scandal. Sentencing has yet to be scheduled for Iguchi, who remains in custody.

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