Nomura’s Ex-Chief Sidesteps Questions at Scandal Inquiry

Setsuya Tabuchi, former chairman of Nomura Securities, was supposed to be the star witness Thursday in Parliament’s ongoing investigation into Japan’s string of recent financial scandals. Expectations for his appearance were so high that stock prices fell early this week as investors anticipated the damage from his testimony.

Instead, Tabuchi--the first brokerage house executive ever to testify before Parliament--sidestepped most questions, and the stock market quickly sprung back.

In the end, the fallen chairman’s testimony did little more than underline how ill-prepared Parliament is to carry out an investigation independent of the Ministry of Finance, which has been accused in the still-widening securities scandal of failing to carry out its regulatory duties.

During Thursday’s hearing, the Special Committee on Securities and Financial Problems frequently had its facts wrong, seldom asked follow-up questions--and occasionally seemed to miss the whole point of the investigation.

One Socialist committee member warned Tabuchi to “work closely with the Ministry of Finance” to make sure that indebted gangsters don’t dump their stocks in a way that might drag down the stock market.

The statement was ironic; one of the key concerns of critics is that Japan “manages” its stock market too much rather than leaving it to free-market forces.

“Japanese politicians don’t have staff to study these issues, so they don’t know what questions to ask,” said Hiroshi Okumura, an expert on securities regulation at Ryukoku University. “Tabuchi wins this round.”

Questions at the hearing centered on allegations that Nomura manipulated shares in Tokyu Corp., a Japanese railroad company.

In 1989, Nomura Securities and Nikko Securities made hundreds of millions of dollars in loans to a gangster figure, Susumu Ishii, and bought worthless memberships in a public country club from him at $14 million apiece. Ishii used the money to invest in Tokyu shares. Later, Nomura heavily promoted Tokyu shares, and prices of the stock soared.

Tabuchi explained that there was little volume in the market at the time, prompting some of the company’s salespeople to “make a go of it” in Tokyu shares. While he admitted that some salesmen went “too far” in selling the shares, he denied that the company was manipulating the stock.

Japanese newspapers have reported that in October, 1989, as much as 90% of the turnover at several of Nomura’s branch offices was in Tokyu shares. In some instances, Nomura branches rapidly bought and sold Tokyu shares owned by the same customer in an effort to drive prices up.

Concerns about Nomura’s role in manipulating Tokyu shares were raised early this summer; they were crucial to authorities’ decision to urge Tabuchi and Nomura’s president to retire. Ministry of Finance officials initially insisted that no manipulation was involved in Tokyu, but they have recently agreed to work with police to more thoroughly investigate the case.

Former Nikko Securities President Takuya Iwasaki, who testified in the afternoon, also denied manipulating Tokyu shares, although he admitted that a Nikko finance subsidiary loaned large sums to Ishii to help him buy Tokyu shares.

Asked about Nomura’s ties to gangsters, Tabuchi explained early in the day that one of Nomura’s directors was introduced to Ishii by a sokaiya-- one of the annual meeting “fixers” who, in a Japanese tradition, usually make most of their money through extortion. Tabuchi said he had never met Ishii; he declined to elaborate on Nomura’s relationship with the gangster.

Regarding Nomura’s purchase from Ishii of what appears to be a worthless golf club membership, Tabuchi simply said the transaction was made by “a subsidiary of a subsidiary” that tends to make “long-term investments.”

Both Tabuchi and Iwasaki said their firms paid more than $200 million to compensate favored customers for stock market losses--a move viewed as unfair to small investors--because they were concerned about maintaining long-term ties with their clients.

Tabuchi, however, reversed his own earlier statements and those of Nomura’s former president maintaining that the Ministry of Finance had approved of Nomura’s decision to compensate customers.

The Ministry of Finance has been repeatedly criticized for failing to prevent the brokers from compensating key clients. Officials admitted in recent testimony before Parliament that the ministry was aware that brokers had been compensating customers as early as 1985. But they said that because the amounts involved were not large, the ministry believed that it was appropriate only to give the brokerages “administrative guidance” to stop the practice.

Okumura, the Ryukoku University expert, worries that the inability of Parliament to elicit new information from the securities company executives could take the wind from the sail of reformers and lead to a premature end to investigation of the scandal.