Japanese Brokerages May Face Suit : Securities: A lawyer for three U.S. investment funds says the Japanese firms covered client losses at foreigners’ expense.

From Reuters

Three big U.S. investment funds plan to slap a multimillion-dollar lawsuit on the Japanese brokerages that covered the trading losses of their local clients, a lawyer for the funds said Wednesday.

They plan to file the suit in the United States against the firms and their U.S. subsidiaries, said attorney Charles Stevens, senior partner in the East Asian offices of U.S. law firm Coudert Bros.

He did not identify the U.S. funds in the action or in what court the suit would be filed.


The funds contend that the Japanese favored local investors and made up for their losses--literally at the expense of foreigners.

“There were no foreign companies that benefited from this arrangement, this really cozy club,” he said. “If Japan says it is in the international capital market, this sort of thing has to end.”

Seventeen Japanese brokerages recently admitted that they paid more than $1.26 billion (172 billion yen) in compensation to favored clients for investment losses.

The admission, which began with the four biggest firms, sparked a scandal in Japan that brought down the heads of two major brokerages.

In making up for the losses, the brokerages sold securities to local clients at cheap prices and then bought them back at artificially high prices. The U.S. funds contend that they suffered damages from paying too high a price for securities as a result.

Stevens said each fund is seeking “tens of millions of dollars” in damages.


A spokesman for Nomura Securities Co.--where top officials stepped down in the scandal--said the trades were not illegal and did not violate rules.

Also making up losses were Daiwa Securities Co., Nikko Securities Co. and Yamaichi Securities Co., which with Nomura make up the Big Four brokerages in Japan.

Japan’s Securities Exchange Law, enacted in 1948, was modeled after the U.S. Securities Exchange Act. Although case after case in the United States has clarified original ambiguities in the law, Japan’s version is mired in gray areas.

For that reason, the suit is being filed in the United States.