Government moves to plug latest Horie loophole

by Reiji Yoshida

Financial Services Minister Kaoru Yosano said Thursday the government will submit a bill to the Diet to establish a registration system for investment unions to prevent organizations with murky backgrounds from conducting questionable stock transactions.

Yosano’s remark at the Lower House Budget Committee came on the heels of the arrest Monday of Livedoor Co. founder Takafumi Horie and three of his top executives on suspicion that he used an investment union allegedly controlled by the firm to illicitly boost a group firm’s stock price.

“The (bill) would give a new comprehensive definition for fund (unions) and extend regulations over them,” Yosano told the panel Thursday afternoon.

The bill, if passed, would require any party that wishes to set up an investment union to register with a government authority, the minister said.

“The purpose (of the bill) is to protect consumers and investors,” he claimed.

At present, an investment union formed as a voluntary private organization is not required to disclose information or register with financial authorities. This, apparently, was a significant factor in Horie’s arrest.

Livedoor Marketing Co. announced in October 2004, when it was a Livedoor subsidiary known as ValueClick Japan Inc., that it would buy out publisher Money Life, resulting in ValueClick’s stock price surging. However, prosecutors say an investment union that was controlled by parent firm Livedoor had effectively taken over the publisher by June 2004.

Prosecutors allege that Livedoor’s October announcement is tantamount to spreading false corporate buyout information to boost stock prices, a violation of the Securities and Exchange Law.

After the sharp stock rise, the investment union allegedly sold off its ValueClick shares and transferred the profits to Livedoor, media reports said. It is not yet clear if this act is also being probed as a crime.