Nomura Files Libel Suit Over Insider Trading Claims : Publishing: The giant Japanese securities firm sues a U.S. author over allegations that it engaged in unethical or illegal practices.
Nomura Securities Co., the world’s largest securities brokerage and a symbol of Japan’s new global financial power, filed suit for libel in a London court Wednesday against an American author who alleged that the company has been involved in insider trading and other securities violations in Japan.
A lawyer representing Nomura said the company alleges that it has been defamed by Albert J. Alletzhauser, a London-based financier and former stock salesman in Tokyo who wrote “The House of Nomura.” His British publisher, Bloomsbury Publishing Ltd., was also named in the suit.
Published in January, the book relates a number of anecdotes suggesting that Nomura engaged in a pattern of activities ordinarily considered unethical or illegal--at least outside Japan’s loosely regulated financial markets.
Nomura contends that the book “falsely and maliciously” said the company “succumbed to the demands of gangsters,” “habitually engages in the practice of insider trading,” “trained its sales staff to exert psychological pressure on vulnerable clients” and revealed “confidential information to politicians in the hope and expectation of political favors,” according to a draft of the plaintiff’s suit.
“My clients think they have got a good name and a good reputation now, and they want to protect it from this sort of attack,” John Turnbull, Nomura’s attorney, said in a telephone interview from London. “They don’t care what it costs to do that.”
Alletzhauser was unavailable for comment, but he said earlier in the week that he believes he can prove the book’s allegations in court, as required by Britain’s tough libel law. The book is being sold in the United States, and Nomura could have sued Alletzhauser there, but Britain’s libel laws are more favorable to plaintiffs. U.S. law would require Nomura to prove the falsehood of any disputed statements.
“The only way they can win this suit is if I get run over by a bus,” Alletzhauser said. “Even then, they’ll probably lose. Until insider trading was outlawed in 1989, it was the backbone of the Japanese stock market. For them to claim it wasn’t is rather outrageous.”
Insider trading has been nominally illegal here since the time of the postwar U.S. occupation, when Japan modeled its securities laws after those in the United States. But the statutes were vague and went unenforced. A year ago, in response to public outcry over several cases of particularly blatant trading abuses, the law was amended to provide for criminal sanctions, including prison terms of up to six months.
Just this week, the Tokyo Metropolitan Police disclosed that they were completing an investigation into what may become the first case of insider trading ever to be prosecuted in Japan.
Police searched the home of a former financial company executive Wednesday for evidence linking him to illicit trading in Nisshin Kisen Kaisha Ltd., a shipowner whose share price soared on the Tokyo Stock Exchange last June after it announced plans for a new stock issue. The suspect allegedly bought 7,000 shares in the name of an acquaintance before the announcement.
The alleged transaction would have been characterized as a clever investment until a few years ago, when a public debate began on the need to bring ethical standards in the Japanese securities industry into line with those of other global financial centers.
Nomura, by far the dominant force in the Tokyo market, is widely believed by Japanese to be involved in a range of ethically questionable business practices. But evidence of securities violations is extremely difficult to gather in Japan because financial authorities have only weak powers to investigate, experts say.
Alletzhauser said he is considering filing a countersuit against Nomura in New York, where the law would give him the power to subpoena documents that he contends would incriminate--or at least embarrass--Nomura.
“I’ll be working on behalf of institutional investors with the SEC in pursuing securities violations, and I’m not ruling out a class-action suit,” he said. “Parallels to Drexel Burnham are not as far-fetched as they might seem.”
Drexel Burnham Lambert Inc. was the U.S. brokerage firm where American junk bond king Michael Milken operated what prosecutors have called a network of financial fraud and deceit. Milken pleaded guilty Tuesday in New York to six federal counts of securities and tax violations, agreeing to pay $600 million in penalties. He faces up to 28 years in prison.
Nomura’s libel case against Alletzhauser, filed in the Queen’s Bench Division of the High Court of Justice in London, can be expected to go to trial before a jury in about a year, said Turnbull, the brokerage’s lawyer.
As an example of what Nomura considers defamatory, Turnbull cited a passage in which Alletzhauser alleged that Nomura’s finance department had been in “collusion” with its stock department to increase the share price of Mitsubishi Heavy Industries Ltd. in 1986 to win the underwriting of a 100-billion-yen convertible bond issue.
“After buying up shares for itself, clients and leading politicians, Nomura had the Nomura Research Institute publish a ‘strong buy’ recommendation on Mitsubishi Heavy shares,” Alletzhauser wrote. “Then Nomura’s almighty stock department swung into action. Responsible for selling shares to clients through its massive branch network, they urged customers to buy Mitsubishi Heavy.”
The share price nearly doubled as a result of the research recommendation and retail campaign, he wrote.
Turnbull said Alletzhauser’s information is wrong.
“The facts are--and I’ve researched this myself--that Nomura was a net seller of Mitsubishi Heavy during the period in question, and it was not recommending a purchase,” he said. “There are lots of specific allegations (in the book) that are simply not true.”
