AIJ faces FSA penalty, loss of registration

SESC prepared to raid pension adviser in hunt for missing cash

Kyodo

The Securities and Exchange Surveillance Commission will recommend that the Financial Services Agency impose an administrative penalty and revoke the registration of troubled asset management firm AIJ Investment Advisors Co., according to sources.

The commission is likely to make the recommendation after finishing its inspection of AIJ, while the company’s operations remain suspended as ordered by the agency.

Once the recommendation is made, the agency is expected to remove the company from a list of registered investment advisory firms in accordance with the Financial Instruments and Exchange Law, the sources said Thursday.

The commission will consider, if necessary, raiding the company’s offices to seize documents and other materials that would shed light on AIJ’s investment operations on suspicion of violating the law regulating financial product trading, according to the sources.

Prosecutors and police have also begun collecting information, alleging the company provided clients with reports listing fictional asset management data.

AIJ officials have told the SESC, which is investigating, that the company invested most of the roughly ¥210 billion entrusted by its clients in funds registered in the Cayman Islands, a tax haven.

The FSA ordered AIJ last week to suspend its business for one month after the securities watchdog found most of the assets entrusted to AIJ by more than 80 employee pension funds were missing.

The commission, however, has yet to find documents on financial transactions that would shed light on AIJ’s investment operations and help figure out the whereabouts of the missing money.

The company headed by Kazuhiko Asakawa, which was renamed AIJ in 2004, instructed trust banks to purchase financial instruments for AIJ’s client corporate pension funds, according to the sources and documents compiled by AIJ.

AIJ solicited money from its clients via the trust banks. ITM Securities Co., which is under AIJ’s effective control, invested most of the assets entrusted by the pension bodies in Cayman Island funds at the request of the trust banks.

The money was then channeled to a major European bank in Hong Kong before being employed in futures trading in Japan, the sources said.

A senior AIJ official told commission inspectors that the company was currently managing assets worth more than ¥20 billion.

Another company source suggested the company may have channeled the money through an overseas fund to conceal its investment activities.

Bonus for fictional gains

AIJ Investment Advisors Co. possibly received substantial remunerations for successful investments using corporate pension funds, despite having actually sustained investment losses, according to findings by the Securities and Exchange Surveillance Commission made available Friday.

In addition to commission fees, the company was supposed to take a cut of investment earnings resulting from pension asset management, documents drawn up by the firm and other findings showed.

In a related development, a senior AIJ official told the SESC that it incurred ¥100 billion in losses over the past three years, sources said earlier in the day.

The AIJ official also told the SESC that there was a year when annual investment losses reached as high as ¥50 billion.

The SESC is carefully investigating the details of AIJ’s fund management, the sources said.

According to sources and AIJ documents, the firm, after signing asset management contracts with corporate pension funds, instructed trust banks to purchase financial instruments on behalf of its client pension funds.