Japanese Firms Rebuked for Insider Trading : No Punishment Planned for Nippon Steel, Sankyo

The Tokyo Stock Exchange reprimanded two companies, including Japan’s largest steelmaker, on Friday for insider stock trading by their employees, an exchange executive told reporters.

Takao Nojiri, a senior managing director of the exchange, said an investigation found that 34 employees of Nippon Steel and precision machinery maker Sankyo Seiki Manufacturing had traded Sankyo Seiki shares while possessing confidential information about a planned tie-up between the firms.

The exchange has told the two companies to take steps to prevent such insider trading in the future but will mete out no punishment, as new legal prohibitions on such trading enacted in May have not yet taken effect, he said.

Exchange officials said 19 employees of Nippon Steel and 15 of Sankyo Seiki bought more than 68,000 shares of Sankyo’s stock before the companies announced that Nippon Steel had purchased an 18% stake in Sankyo.

The employees began their purchases as early as four months before the announcement, according to the exchange’s transaction review section. The price of Sankyo stock soared just hours before the announcement.

Massive Problem Suspected

On the afternoon of July 29, the exchange took the unusual move of suspending trading in Sankyo shares, but the volume of Sankyo shares traded in the morning session still was nearly 10 times the previous day’s level.

Securities officials have said they had suspected massive insider trading.

The exchange refused to identify any of the 34 employees and said no charges will be brought even though it has confirmed that some of them were directly involved with coordinating the business agreement.