To the dismay of many people, the stock scandal involving Seibu Railway Co. has exposed a cloistered corporate culture. Seibu — which went public more than half a century ago — allegedly filed a false securities report to the Tokyo Stock Exchange (TSE). It is also suspected of illegal insider trading.
Mr. Yoshiaki Tsutsumi, the de facto owner of the Seibu Group, has resigned as chairman of Seibu Railway, and has quit all his other positions in the group.
In the report, Seibu allegedly understated the combined stake held by its parent company, Kokudo Corp. and other members of the group. According to TSE rules, a company in which a handful of major shareholders hold more than 80 percent of the stock may be delisted. That’s because excessive concentration of stock ownership distorts public stock trading and thus undermines shareholder and investor interests.
What’s more, Seibu could face criminal charges of insider trading — a stock transaction made with the help of prior confidential information. The company is suspected of having sold shares held by Kokudo and others to corporate clients without telling buyers that the ratio exceeded the 80 percent listing standard. Seibu stock prices dropped after the deals became public. Such trading could constitute a violation of the Securities and Exchange Law.
Before his resignation, Mr. Tsutsumi had been widely regarded as one of Japan’s representative corporate leaders. He has built a major conglomerate comprising a wide range of operations, including transportation, real estate, tourism and leisure. The scandal, however, has revealed the flipside of “one-man management”: a lack of respect for fairness and transparency — guiding principles of the free-market economy.
Mr. Tsutsumi admitted his responsibility at a news conference, saying his (aristocratic) presence might well have created a “stuffy” atmosphere in the Seibu group. It seems unlikely, though, that such a public apology is enough to appease angry investors and clients whose stakes in the company plummeted in value after the scandal broke.
Both cases of false filing and insider trading are now under investigation by various authorities, notably the TSE, the Land, Infrastructure and Transport Ministry, and the Kanto Regional Finance Bureau of the Finance Ministry. They should leave no stone unturned and, if necessary, consider filing criminal charges.
Allegedly Seibu underreported its shareholding ratio over an extended period. It is also alleged that the company improperly transferred ownership of some shares held by Kokudo and other affiliates to individual shareholders, and that Kokudo and others received dividends payable to those shareholders.
The stock sales to clients were allegedly made several months before the transactions were made public, although Mr. Tsutsumi said at the press conference that he learned of those deals barely a month before. The legal ban on insider trading could apply if the trading was actually aimed at reducing the share-holding ratio rather than promoting mutual stock ownership (as was reportedly explained to the purchasers).
Legal experts question whether stock sales for this purpose represent a transaction aimed at “profiteering,” a violation of the securities law. Whatever the final answer, the fact remains that buyers and shareholders have suffered heavy losses because large numbers of shares were sold. Already some buyers are demanding compensation or buybacks. It is likely that shareholders will file a collective lawsuit.
The Seibu Group has expanded around family ties while most other privately owned groups have developed into more open organizations oriented toward general investors and shareholders. Given the public’s particular interest in it, Seibu Railway should have followed the same path. In retrospect, Mr. Tsutsumi’s overwhelming control over the group seems to have stymied its healthy development.
More than 30 years ago, large blocks of Seibu stock were purchased by a number of well-known speculators, including Kenji Osano and Yoshio Kodama, both of whom also were implicated in the Lockheed payoff scandal. They made enormous profits by selling the stock back to Seibu at higher prices. The company appears to have become overly defensive ever since. Perhaps that’s why it has internalized its stock and minimized the number of shares available for public trading.
Whatever the reasons, there is no question that Seibu has deceived investors. Mr. Tsutsumi has a duty to explain exactly what went wrong and why — all the more because of the extensive influence he has wielded in a broad range of fields, including politics and sports.
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