The Securities and Exchange Surveillance Commission recommended Wednesday that financial regulators punish Minami Securities Co. for fraudulently selling corporate bonds, commission officials said.

The securities watchdog's recommendation was issued to the Financial Reconstruction Commission and the Financial Supervisory Agency after authorities discovered that Minami Securities, a small brokerage house based in Maebashi, Gunma Prefecture, had sold 210 million yen worth of corporate bonds issued by three paper companies to 51 investors in November.

The presidents of the three companies had no knowledge of the bond sales, the officials said.

The SESC said Minami Securities and its president, Koichi Hirata, violated the Securities and Exchange Law by selling the bonds as safe, high-yield bonds.

The SESC's findings included that Minami Securities listed only five of the 51 buyers on its books.

The Kanto Local Finance Bureau, the local arm of the Finance Ministry, ordered Minami Securities to suspend sales of bonds for a three-month period from the end of February.

In early March, Minami Securities was declared bankrupt by the FSA after it was found to have a negative net worth of 367 million yen.

The local finance bureau ordered the brokerage to suspend business for six months over its failure to abide by the legally mandated distinction between the company's own money and customer funds.

FSA investigators found that Minami Securities put only 800 million yen of the 1.2 billion yen in margins its customers deposited with the brokerage into the custody of trust banks, the agency said.

The 400 million yen difference remains unaccounted for in the company's books. In addition, 332 million yen of the company's own funds are unaccounted for.

Hirata is suspected of bringing 3.2 billion yen worth of securities certificates out of custody without customers' consent.

In a related development, the Japan Securities Dealers Association said Wednesday it has imposed a fine of 500 million yen on Minami Securities following the government's order for the small brokerage house to suspend operations.