Japan Penalizes Huge Brokerage, Bank

TOKYO â€”  Japan’s biggest brokerage and its third-largest bank, caught in a widening scandal over payments to an extortionist, were hit by the Finance Ministry on Wednesday with unprecedented tough penalties. Nomura Securities Co. and Dai-Ichi Kangyo Bank were ordered to suspend numerous key operations for the rest of the year, a marked departure from the government’s traditionally respectful treatment of corporate Japan.

Nomura was banned from trading stocks on its own account from Aug. 6 to the end of the year. All brokerage operations at its headquarters are shut down for a month.

Dai-Ichi Kangyo was barred from making new loans until the end of the year, with the exception of housing loans. It also cannot open new outlets or launch new operations at home or abroad for one year.

Both firms were banned from underwriting government bonds through Dec. 31.

Nomura could see revenue tumble by 25% through the end of the year and is likely to suffer more from the penalties than Dai-Ichi Kangyo, analysts said.

“In the past, wrongdoing, corruption and outright criminal behavior in financial organizations has always been [largely] covered up and has always been solved with a preemptive and formal resignation of the head of the company,� said Jesper Koll, vice president of J.P. Morgan Securities Asia Ltd.

By imposing swift and strict penalties--at least by Japanese standards--the Finance Ministry is laying new groundwork for implementing Prime Minister Ryutaro Hashimoto’s proposed financial reforms, which aim to liberalize Tokyo’s markets by 2001 to make them comparable to the New York and London markets.

Nomura and Dai-Ichi Kangyo are accused of paying off Ryuichi Koike, 54, an alleged sokaiya corporate racketeer who is currently under arrest. Sokaiya often demand payoffs by threatening to disrupt shareholder meetings with embarrassing disclosures.

Nomura’s president, Junichi Ujiie, recently admitted that the firm gave $2.8 million in cash to Koike. Former Dai-Ichi Kangyo Chairman Tadashi Okuda was indicted last week for allegedly approving $100 million in loans to Koike.

The scandal widened Wednesday when 100 investigators raided Yamaichi Securities Co., Japan’s fourth-largest brokerage, in search of evidence that it too made payoffs to Koike.

Etsuko Kawase of The Times’ Tokyo bureau contributed to this report.