Book on Japanese Securities Giant Under Fire : Trading: Nomura has threatened the author and his publisher with a libel suit over claims of insider trading and other practices.
In a legal tangle that may shed some light on the shadowy world of the Japanese securities industry, giant Nomura Securities Co. is threatening to file a libel suit in a London court next week against an American author who detailed the company’s alleged involvement in unethical business dealings.
Nomura has set a deadline of April 19 for Al Alletzhauser, author of “The House of Nomura--the Rise to Supremacy of the World’s Most Powerful Company,” and his publisher to withdraw the book and negotiate a payment of damages, Nomura’s lawyer said. If that deadline is not met, Nomura will resort to legal action, the lawyer said.
“What they’re trying to do is threaten and harass me,” Alletzhauser said in a telephone interview from his London office.
“My understanding is that they’re very upset about my claims that Nomura has in the past engaged in insider trading, share price manipulation, account churning and has been associated with sokaiy a”--gangsters who extort money from corporations by causing disturbances, or silencing dissent, at general shareholder meetings.
Nomura, the largest brokerage and one of the most influential financial institutions in the world, is the dominant force in the Japanese securities industry. On a typical day, it controls as much as 20% of all transactions on the Tokyo Stock Exchange. It has 12,000 employees and boasts a list of 5 million domestic customers.
The company is also a powerhouse in the New York and London markets and plays a critical role in purchasing and trading U.S. government securities.
Shortly after the book was released by Bloomsbury Publishing Ltd. in Britain at the beginning of the year, lawyers for Nomura sent letters to Alletzhauser and the publisher complaining of “serious and maliciously defamatory statements” in the book and warning of legal action.
John Turnbull, an attorney at the London law firm retained by Nomura, Linklaters & Paines, refused to say which passages in the book were considered defamatory.
Although the allegations raised in print by Alletzhauser are characterized as common knowledge in Tokyo by securities industry sources, they will be difficult to prove as required under British libel law. Unlike libel cases in the United States, where the burden of proof is on the plaintiff, in Britain defendants must prove their statements accurate.
“There was nothing special or sensational in the book,” said Seijiro Watanabe, a Tokyo lawyer who represents small investors in securities fraud cases. “If Nomura sues, they really should lose their case. But I suppose it will depend on what kind of evidence the defense can put together.”
The book, which topped the best-seller charts in London in mid-February and has sold about 19,000 copies so far, is to be published in the United States and Japan next month. Alletzhauser said he expects Nomura to try to quash publication of the Japanese-language version. He added that he is negotiating the sale of film rights.
“It’ll be a cross between ‘Black Rain’ and ‘Wall Street,’ ” said Alletzhauser, 30, a former equity salesman in Tokyo for the British securities firm James Capel & Co.
“The House of Nomura,” the book’s dust jacket informs readers, documents Nomura’s “stranglehold on Japan’s financial markets,” “reveals how this frightening concentration of power has come about” and “lays bare the incestuous links between politicians, stockbrokers, bureaucrats and businessmen.”
Alletzhauser traces the origins of the brokerage to a 19th Century money changer, Tokushichi Nomura, and chronicles its growth into a zaibatsu , or financial conglomerate, its breakup during World War II and its reconstruction during the postwar industrial boom, when Japan turned into an economic superpower.
The text is peppered with anecdotes that allege Nomura’s involvement in the seamy side of the Japanese securities industry, which traditionally has been policed--loosely--by regulatory authorities and has been rampant with securities violations.
Until the late 1980s, insider trading as it is known in the United States--the use of privileged inside knowledge to earn profits in stock transactions--was not considered unethical here. Nor was it prosecuted under the securities laws, modeled after U.S. laws.
Michio Katsumata, a spokesman for Nomura in Tokyo, denied that the brokerage had any complicity in insider trading or share-price manipulation.
“The book was thoroughly researched,” said Alletzhauser, who is preparing a countersuit that he said would make “highly embarrassing” disclosures about Nomura. “In fact, the major criticism I’ve heard so far is that I didn’t tell more. For every example in the book, there are five others I didn’t use.”
But the scarcity of public documentation on securities violations in Japan may compromise Alletzhauser’s defense, lawyers here said. Finance Ministry and stock exchange authorities generally conduct investigations in secret and are not required to disclose their findings. Cases seldom, if ever, go to court.
“Japan’s big brokerage houses are all into dirty practices,” said Shuzo Nakashima, a Tokyo securities lawyer. “There’s no mistaking that Nomura has been doing a lot of outrageous and unfair things over the years. But where’s the evidence? These things don’t come out in the open.”
In a rare exception, the Tokyo District Court handed down a decision in 1987 that found that a broker in a Nomura branch office had betrayed a client’s confidence through unauthorized trading, or account churning.
The investor, whose case was described in Alletzhauser’s book, won his damage suit only because his wife secretly tape recorded the Nomura representative apologizing for the breach and promising to recoup the losses through an opportunity to invest in a new issue of hot stock. Watanabe, the securities lawyer who represented the client against Nomura, said it was the first time a plaintiff had won such a case in Japan.
Alletzhauser and Bloomsbury are represented by David Hooper, a London libel lawyer known for his successful defense of Peter Wright, whose book “Spycatcher” came under attack by the British government for disclosing intelligence secrets.
