Ten corporate customers were involved in Yamaichi Securities Co.’s dubious “tobashi” dealings to hide losses that eventually led to the collapse of the brokerage, Tsugio Yukihira, chairman of the failed firm until last August, said Tuesday in unsworn testimony in the Diet.
Yukihira said that Big Four brokerage Yamaichi racked up more than 200 billion yen in losses off its balance sheet by shouldering the debts incurred by the 10 customers. He said he was unable to recall any of the names of the client firms. The firms entrusted the brokerage with specified amounts of money to invest as it saw fit. The sharp fall of stock prices in the early 1990s and bad dealings by Yamaichi generated the losses, the 66-year-old Yukihira said.
“Traditionally, corporations made up the great majority of customers of our 100-year-old firm,” Yukihira told the Lower House Budget Committee. “Therefore, we believed that Yamaichi would not be able to survive if our firm caused huge losses for our corporate customers. “We kept (the debts) off our balance sheet because we feared that making such huge debts public would force Yamaichi to fall out of the Big Four group,” he said.
Yukihira was summoned to testify about the brokerage’s sudden failure and the firm’s alleged illegal actions, including the tobashi deals and keeping off-the-book debts by setting up dummy companies. It was the second time Yukihira has testified in the Diet in the past two weeks. He was summoned to the Upper House Budget Committee in late November.
The practice of tobashi, or shuffling, is not illegal in itself. It entails arranging for the sale of loss-carrying securities from one client company to another with different accounting periods to conceal investment losses on the firms’ financial reports, in the hope that the market price will eventually rise. The losses can grow at every sale, and it is punishable under the Securities and Exchange Law if the brokerage itself buys the securities to compensate the final client’s losses.
Yukihira acknowledged that the activities violated the law. He claimed that only three people at the brokerage, including himself and former President Atsuo Miki, 62, conducted the irregular trading. When Kosuke Ito of the Liberal Democratic Party told Yukihira to name the 10 firms involved in the illegal trading, he refused to do so, saying he was unable to recall them. Asked if the Finance Ministry knew in 1991 that Yamaichi had engaged in tobashi, Yukihira claimed he did not know.