Kokudo Corp. sold some of its shares in Seibu Railway Co. without telling buyers that the railway firm’s stock ownership conditions met delisting standards, sources familiar with the matter said Wednesday.

Kokudo, an unlisted firm running the Prince Hotels chain and sports facilities, told the buyers — including Sapporo Breweries Ltd., Kirin Brewery Co. and major construction firms — that the sales were aimed at boosting its management transparency, the sources said.

Kokudo’s failure to explain the equity ownership conditions could turn out to be a violation of the Securities and Exchange Law for insider trading.

Under the law, an insider is forbidden from trading on the knowledge of key internal information before its disclosure.

Trades conducted outside a bourse between insiders who share internal information are exempt from the law. But if one party has no such information, the deal may be judged as insider trading.

The sources also said Yoshiaki Tsutsumi, who stepped down as Kokudo chairman last week to take responsibility for underreporting Kokudo’s shareholdings in Seibu Railway, sounded out some companies in August on the sales of its Seibu Railway shareholdings.

This contradicts remarks made by Tsutsumi at an Oct. 13 news conference, in which he said he had asked some firms to buy the stock after he learned of the underreporting within the preceding month.

Sapporo Breweries bought shares in September after being solicited in August, while Kirin Brewery bought about 2 million shares for 2 billion yen in late September, the sources said.

Suntory Ltd., Japan’s largest whiskey maker, also purchased about 2.6 million shares for 3 billion yen in late September after Tsutsumi asked Suntory President Nobutada Saji to buy shares earlier that month, they said.

Kokudo sold more than 72 million Seibu Railway shares off-market in August and September. The stock slumped after the disclosure of the underreporting, sharply reducing the value of shares bought by the companies prior to the announcement by Seibu Railway on Oct. 13.

Seibu Railway reported to the Kanto Local Finance Bureau that it had revised the information on its financial statements, including the ratio of shares held by Kokudo and Kokudo subsidiary Prince Hotels Co.

The ratio of Kokudo’s shareholdings was revised upward to 64.83 percent from 43.16 percent and that of Prince Hotels to 4.20 percent from 0.98 percent for fiscal 2003. As a result, the ratio of total shareholdings by Kokudo and nine group companies topped 88.00 percent.

The Tokyo Stock Exchange stipulates that shares are to be delisted if the combined ownership by the top 10 shareholders, board members and the company itself exceed 80 percent for more than one year.

In a related development, Tsuguoki Fujinuma, chairman of the Japanese Institute of Certified Public Accountants, told reporters that the institute will query two accountants in charge of Seibu Railway to see if there were any problems with their accounting.

Hidekazu Yamada has worked as the company’s accountant for 29 years and Yuji Chikazawa for 18 years, according to the institute.

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