Nomura find it breached Japanese law after investigation

Bloomberg

Nomura Holdings Inc. has determined that it breached securities laws in its handling of nonpublic information about a company the firm took public last year and plans to report the issue to Japanese regulators, people with knowledge of the matter said.
An internal investigation found that a former branch manager in Kyushu in southern Japan mishandled private information that Wash House Co. was considering a stock split, the people said. While Nomura hasn’t uncovered evidence that employees broke insider trading rules, the firm concluded it violated a law governing the treatment of corporate information, they said.
Wash House shares jumped 80 percent from early February through March 10, when the company disclosed the split after the market close. The stock surged as much as 15 percent the trading day after the announcement. Nomura arranged Wash House’s November initial public offering, a deal the former branch manager was involved in, according to the people.
Nomura started investigating the incident in April, combing through phone records to gauge how the information was handled, said the people. The firm concluded that the branch manager discussed the possible stock split with a Wash House executive in late January, they said. The branch manager was relocated to Tokyo last month.
A spokesman for Nomura declined to comment, as did an official at Wash House. Multiple efforts
by Bloomberg to reach the
former branch manager were
unsuccessful.
Wash House, founded in 2001, runs a chain of 410 coin-operated laundry franchises throughout Japan. The company had 103 employees as of March 31 and a market value of 33 billion yen ($300 million).
Japanese securities laws ban employees at securities firms from sharing nonpublic information that could impact investors’ behavior. The restrictions apply especially to interactions between investment banking workers and other staff. The former manager at Nomura’s Miyazaki branch helped the firm secure the Wash House IPO, and he also oversaw the sales staff charged with promoting the shares to clients, the people said.
Such managers must still abide by internal “Chinese walls” and refrain from sharing confidential information with sales staff, according to the people.
At a Feb. 14 investor meeting, Wash House President Yasutaka Kodama acknowledged that some investors sought more liquidity in the stock and said “I think we will be able to meet your expectations,” without elaborating, according to a video recording on its website. The stock jumped 8.2 percent that day and 8.5 percent the day after.
A stock split has no effect on the value of an investment; it simply redistributes a company’s equity over a larger number of shares. Still, some traders see splits as bullish indicators because they can help make stocks more affordable for individual investors.

February Meeting
Nomura’s investigation found that the morning after Kodama’s presentation, the former branch manager held a meeting with sales staff during which he raised the possibility of a stock split, the people said. The manager spoke in general terms without indicating that he possessed private information about the matter, they said.
The probe also revealed that in the period leading up to the March 10 announcement, Nomura sales staff discussed the prospects of a stock split with clients, according to the people.
Nomura officials determined that while the former branch manager breached internal compliance rules, his actions didn’t violate any laws, the people said. Even so, the firm as a whole was assessed to have been in breach of securities laws, they said.
Tokyo-based Nomura will submit an official report to the Financial Services Agency as soon as this month, the people said. The firm has determined that its internal controls were lacking in the Wash House incident and will take steps to strengthen them, they said without providing details.
The FSA will wait for Nomura’s full report before deciding whether to take any action, a person with knowledge of the matter said. An FSA official declined to comment.
Insider Trading
Wash House was the first Miyazaki-based company in 12 years to go public. The last IPO Nomura generated in the southern prefecture was in 1990.
In 2012, regulators sanctioned Nomura for insider trading after employees leaked information on upcoming secondary share sales the firm was helping arrange. Nomura’s top two executives resigned amid the scandal, and the incident caused Japan to tighten securities laws less than two years later.
Nomura Chief Executive Officer Koji Nagai said in December 2013 that the company had taken measures to strengthen internal controls and compliance. His comments came a day after the firm announced it would take “strict action” against employees who gave confidential data to investors.