Photo/Illutration Yuichiro Kondo, president of SMBC Nikko Securities Inc., gives a news conference in Tokyo on March 5 following the arrests of four high-ranking officials on suspicion of market manipulation through dodgy stock transactions. (Yosuke Fukudome)

Tokyo prosecutors intend to file market manipulation charges against SMBC Nikko Securities Inc., known in the industry as one of the “market gatekeepers,” along with its four high-ranking officials under arrest, sources said.

Investigators with the Tokyo District Public Prosecutors Office appear to believe that the securities house should also be criminally held responsible, citing its management oversight, the sources said.

Under a joint punishment provision of the Financial Instruments and Exchange Law, charges can be brought against a corporation as well as its employees accused of illegal conduct.

In the case of market manipulation, the maximum penalty against a company is a fine of 700 million yen ($6 million).

Investigators suspect that SMBC Nikko manipulated stock prices systematically across its departments, which would constitute negligence in preventing illegal conduct, the sources said.

Prosecutors are considering applying the joint punishment provision mainly because the company earned substantial gains as a financial broker and due to the fact that it is held in such high regard in the securities industry, which they said jeopardized the reputation of the stock market itself.

“Our trading management system might have not been at a level that ensured fairness in dealings,” Yuichiro Kondo, president of SMBC Nikko, said at a March 5 news conference.

The four officials, two of whom held executive positions and worked in the firm’s equity department, were arrested on March 4. They have all denied wrongdoing.

Prosecutors contend that they conspired to prop up the share price of five stocks, including those listed on the Tokyo Stock Exchange’s First Section, between December 2019 and November 2020.

Block trades of those stocks allegedly resulted in the company propping up the share price to ensure the trades went through.

Prosecutors named the suspects as Trevor Hill, 51, a senior managing executive officer who heads the equity department; Alexandre Avakiants, 44, an executive officer who serves as deputy head of the equity department; Makoto Yamada, 44, who heads the equity section in the department; and Shinichiro Okazaki, 56, who heads another section in the same department.

Block trades involve large-volume sales of stock by major shareholders. Because the sale of a large number of shares at the same time can trigger a sharp drop in the share price, securities firms arrange to sell the shares in smaller lots to other investors outside of the market.

The share price for the transaction is determined by the closing price on the day the sale is to be made. But if the market share price drops, the shareholder that initially put up the shares for sale can request a postponement in the transaction to avoid a damaging loss.

But stopping a transaction is only done in extreme circumstances due to the risk of damaging an institution’s reputation and losing gains from the sale.

Investigative sources suspect the four were involved in placing a large-volume buy order shortly before the Tokyo Stock Exchange closed to ensure the share price of the stock remained stable.

The joint punishment provision was applied when Carlos Ghosn, the former chairman of Nissan Motor Co., was indicted for violating the same law.

Ghosn, who later staged a dramatic escape from Japan while free on bail, was accused of falsifying financial reports by not disclosing a total of about 9.1-billion-yen in remuneration.

The charge also led to indictment of Nissan as a corporation.

Ghosn, who said he was innocent of the crime, claimed that massive media coverage over his arrest ensured he would not get a fair trial in Japan.

Nissan admitted its culpability in the prosecutors’ accusation and was ordered by the Tokyo District Court on March 3 to pay a 200 million yen fine.

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