Photo/Illutration SMBC Nikko Securities Inc. in Tokyo’s Chiyoda Ward in June 2022 (Naoko Kawamura)

A court ordered SMBC Nikko Securities Inc. to pay a fine of 700 million yen ($5.3 million) and an additional penalty of around 4.47 billion yen for manipulating stock prices.

The Tokyo District Court on Feb. 13 also handed an 18-month prison sentence, suspended for three years, to Teruya Sugino, former deputy head of the company’s equities division, for violating the Financial Instruments and Exchange Law.

“As a gatekeeper of the market, the major brokerage was in a position to set an example to strictly uphold the law, so the level of condemnation is severe,” Presiding Judge Daisuke Kanda said.

According to the ruling, SMBC Nikko manipulated the closing prices of 10 issues listed on what was then called the First Section of the Tokyo Stock Exchange between 2019 and 2021.

It propped up the stock prices by placing large volumes of buy orders, using around 4.4 billion yen of its own funds, just before trading closed for the day.

During off-hours trading, the brokerage then mediated “block trades” for the 10 stocks between major shareholders and investors. The share prices for the transactions were based on the latest closing prices.

The court said SMBC Nikko illicitly gained around 1.09 billion yen through this scheme.

Sugino was found guilty of being involved in selling one of the 10 stock issues.

The ruling said block trades can spur short selling by investors, which could push down the value of the stocks. If such prices fall too low, major shareholders can halt the block trade transactions.

Kanda said, “(SMBC Nikko) did not take this into account and prioritized immediate profits by repeatedly using its own funds to buy stocks.”

The judge said the brokerage’s compliance department noted the illegality of the action but left it unattended.

“The function of monitoring and preventing illegal acts lost its substance (at the brokerage),” he said.

Kanda concluded that “the degree of oversight negligence was significant.”

The judge said Sugino “bears high responsibility for easily accepting (the deal) while being aware of its illegality.”

Five other SMBC Nikko officials, including former Vice President Toshihiro Sato, 60, have been indicted in the scandal. But the date for the first trial hearing has not been set.

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