Japan's brokers rigged trades of U.S bonds


TOKYO -- The brokerage houses involved in Japan's widening financial scandal engaged in many more bogus securities transactions than previously acknowledged and also rigged trades involving U.S. Treasury bonds, according to a newspaper report that was confirmed by the Finance Ministry yesterday.

The disclosure, made Wednesday by the Mainichi Shimbun, was the first indication that trading in securities listed on exchanges and in foreign securities was used by the brokerages to make improper payments to favored clients.

The report contradicted an earlier assertion by the Finance Ministry that no securities listed on exchanges were used by the brokers in concealing payments to clients. The ministry had said that because the stocks were not listed, it could not prosecute the securities houses under a potent anti-fraud provision.

The Mainichi also repored that the brokerage houses made bogus trades in Nikkei stock-index futures contracts and Japanese government-bond futures contracts. It cited a Finance Ministry document as the source for its article.

A ministry official later confirmed that the information had come from a ministry report but said that the paper had gotten the names of the companies involved on its own.

Asked in a telephone interview whether the new information would alter the ministry's position on prosecuting the brokerage houses, Shigeki Kimura, an official who works under Nobuhiko ++ Matsuno, head of the Finance Ministry's securities bureau, said that it would not.

He repeated Mr. Matsuno's assertion that the ministry knew the billions of dollars in trades were bogus. But he said that the law could only be applied if the securities firms rigged trades to take money from their customers, not if they did so to enrich them.

Mr. Kimura also said that in his earlier remarks, Mr. Matsuno did not mean to exclude the possibility that listed securities might have been used by the brokerage houses.

Top Japanese securities firms have admitted they made about $1.3 billion in payments to some big clients as compensation for stock-market losses.

To hide these payments, they created trades in which securities were usually sold at artificially low prices or repurchased at artificially high prices, guaranteeing profits for certain big customers.

The Finance Ministry had claimed it could not prosecute the firms for making payments because the law prohibits promising in advance to make up for losses, but not actually providing compensation.

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