Banker Stole $45 Million, D.A. Charges

A former Los Angeles executive of Mitsubishi Bank of California was charged Thursday with embezzling nearly $45 million through a pyramid-type scheme in which he created more than $946 million worth of bogus loans and loan renewals, Dist. Atty. Ira Reiner said.

Reiner said Hirotsugu Mizuno, 44, a former senior vice president with Mitsubishi, now believed to be in Japan, diverted money through 135 phony transactions in order to play the stock market and pay off large race track gambling debts.

The district attorney had harsh words for Mitsubishi, saying that the bank initially cooperated with investigators but eventually sought to have the case dropped to protect its image. Bank officials refused to turn over certain documents and transferred Mizuno and key witnesses to Japan, he said.

“Their cooperation became less and less until eventually there was no cooperation at all,” Reiner told reporters.

Because Mizuno returned most of the money he embezzled during a four-year period, Mitsubishi’s actual losses amounted to $4.9 million, according to the district attorney.

Taking issue with Reiner, however, Mitsubishi’s Los Angeles lawyer, Carl Bradshaw, said the bank’s losses were only $130,000 and that the bank had fully cooperated with authorities.

In Tokyo today, Atsushi Masuda, senior managing director of the bank, told a news conference that Mitsubishi will file charges with the Tokyo District prosecutor’s office to clarify the discrepancy between Reiner’s account of the bank’s losses and its own and to seek to maintain public confidence in it.

Under the action, the prosecutor’s office will be forced to investigate the case. Whether an indictment will be sought, however, will depend on the outcome of the investigation.

Masuda said the bank had not sought to prosecute Mizuno previously because the former employee had promised to make efforts to repay the balance of the bank’s losses. He was fired in July, 1985.

A bank spokesman, however, confirmed that the bank does not know where Mizuno, a native of Tokyo, is living now, nor is it sure that he is in Japan.

Reiner said Mizuno began arranging a series of phony loans in 1980.

“He would create a loan, then he would take the proceeds from that loan, then he would create another loan, or loan renewal, to pay off the prior fictitious loan. He kept this going; he kept the balls in the air continually.”

According to the complaint, Mizuno created fictitious accounts and misappropriated funds from the accounts of two actual bank customers, Teikyo International Co. Ltd. and Amorient Petroleum Inc., without their knowledge.

About $100 million of the misappropriated funds were used to invest in securities through two Los Angeles brokerage houses, Nomura Securities International and Daiwa Securities America, Reiner said.

In a memorandum to the district attorney’s office released to The Times by Bradshaw, the attorney said that Mizuno’s stock market investments were profitable, resulting in a net gain of $1.3 million.

Repayment Intended

“Obviously, this does not absolve the employee from wrongdoing, but it does indicate that his activities were with the objective of repaying all fraudulent loans with interest rather than absconding with funds,” the memo said.

The scheme was uncovered after Mizuno was suddenly promoted and transferred to the New York branch in September, 1984, Reiner said. Mizuno had worked in Los Angeles since 1979 after spending 14 years with the bank in Japan.

In order to cover his losses before his departure, Mizuno hastily established a fraudulent $8-million line of credit for a Montana utility company. The man who replaced him called Montana Power Co. to introduce himself and discovered that no such loan existed.

Confession Reported

Reiner said bank officials confronted Mizuno and extracted a confession from him before ordering him back to Tokyo and firing him. They have refused to provide the district attorney’s office with this document, Reiner said.

The bank was able to recover $3 million from one of the brokerage houses, the district attorney said.

Reiner said the claim that Mitsubishi lost $4.9 million was based on a sworn proof of loss statement the bank filed with its insurance company.

Mitsubishi said that the fraudulent loans resulted in the bank’s overstating its interest income by $6.4 million. The bank used Mizuno’s stock market profits to offset the overstatement by $1.3 million.

After subtracting the $1.3 million and taking possession of $80,000 in Mizuno’s personal savings account, the bank said, the out-of-pocket cash loss amounted to only $130,000. The rest of the overstatement constitutes a theoretical loss based on non-existent interest income, according to the bank.

The bank also said the loss was incurred by its parent company, Mitsubishi Bank Ltd., the world’s fourth largest bank, with assets of $180 billion.

“You can claim hypothetical losses. The insurance company allows us to make the claim, so we made the claim,” Bradshaw said.

Mitsubishi eventually received $600,000 from the insurance company, he said.

In a written statement issued Thursday, Bradshaw said, “The district attorney’s reliance on a very technical legalistic definition of the term ‘embezzlement’ ignores the real impact on the bank in Japan--only a tiny fraction of the sum cited by the district attorney.”

Asked about Reiner’s claim that $45 million was embezzled from the bank, Bradshaw said, “That figure has no meaning for me at all.”

‘Voluminous Files’

Bradshaw said the bank provided Reiner’s office with “voluminous files and results of interviews with individuals with any possible connections to the case.”

Denying that the bank was attempting to thwart the investigation by transferring key figures, he said it is routine for executives with international firms to be rotated every three years.

Reiner said it could take up to 18 months to extradite Mizuno from Japan, and Bradshaw acknowledged that the bank does not know where the former executive is. He was fired shortly after being ordered to return to Japan in October, 1984.

‘It’s No Big Deal’

Mizuno is charged with seven felony counts, including misapplication of assets of Mitsubishi and its parent company, two counts of grand theft and four counts of forgery.