Alleged stock manipulation at SMBC Nikko may have been organizational

Alleged stock manipulation at SMBC Nikko Securities Inc. involved several sections, raising a possibility the misconduct had been organizational, investigative sources said Saturday, after four of the company’s employees were arrested.

The four employees, including the head of the company’s equity department, are suspected of trying to prevent a decline in share prices for five individual stocks on the First Section of the Tokyo Stock Exchange through actions including placing buy orders from December 2019 to November 2020, the sources said.

SMBC Nikko President Yuichiro Kondo apologized for the alleged misconduct, saying, “I deeply regret that we, as a securities company, caused an incident that could have shaken the confidence of the market.”

“I deeply apologize to investors and market participants,” Kondo said at a news conference in Tokyo. He admitted the internal management system had been insufficient to prevent illegal conduct, but denied he will step down from his post.

“My responsibility is to first recognize and grasp the situation accurately, conduct improvement measures and make utmost efforts to regain trust,” he said.

The four suspects were allegedly involved in transactions called “block offerings,” which are used when large shareholders sell a significant part of their stake in a company.

Securities houses often pick up such shares outside trading hours and invite interested investors to buy them. The difference between the purchase price and sales price becomes profit.

According to the sources, SMBC Nikko’s global financial products and solution section first respond to requests from institutional investors and corporate entities when they want to sell shareholdings via block offerings.

Then the section will arrange a set of procedures with the equity trading section, such as setting trading days and discounts for transactions.

But in this case, the equity trading section is suspected of not only being involved in such arrangements but also in stock manipulation, such as buying stocks with in-house funds and trying to retain share prices, the sources said.

The Japanese securities firm has set up an investigation panel consisting of three lawyers to look into the incident, Kondo said.

The suspects are Trevor Hill, the 51-year-old head of the company’s equity department, deputy equity chief Alexandre Avakiants, 44, Makoto Yamada, 44, the head of the equity trading section, and Shinichiro Okazaki, 56, who headed the equity products solution section, the predecessor of the global financial products and solution section.

The four denied the allegations during voluntary questioning, claiming the moves were legitimate trades and they had no intention to support the stock prices, the sources said.

Stock manipulation in violation of the Financial Instruments and Exchange Act is punishable by up to 10 years in prison or fines of up to ¥10 million ($87,160), or both.