Yamaichi Securities

Yamaichi Securities was a Japanese securities trading and investment-banking firm founded in 1897. It became one of Japan’s four major securities houses and built a client base concentrated among large Japanese corporations. Its business included securities brokerage, corporate finance and investment-related activities, and it operated within Japan’s historically important securities-company sector. The company expanded its risk-taking during Japan’s asset-price boom in the 1980s. Ten clients entrusted it with specified amounts of money to invest at the firm’s discretion. When Japanese markets deteriorated in the early 1990s, losses from these activities and from Yamaichi’s own dealings exceeded ¥200 billion. Rather than disclose the losses and risk a damaging loss of confidence, the firm assumed responsibility for client losses and moved liabilities away from its visible balance sheet. Beginning in January 1992, Yamaichi executives used a network of affiliated and dummy companies in transactions commonly described as tobashi arrangements. A separate entity, Yamaichi Enterprise, opened an account at Credit Suisse’s Tokyo branch and deposited approximately ¥200 billion in Japanese government bonds. Transactions involving related entities were used to create apparent profits for clients while absorbing losses. One part of the arrangement ultimately concealed losses of ¥158.3 billion. A separate foreign-currency-bond scheme concealed a further ¥106.5 billion through Yamaichi’s Australian subsidiary. The arrangements became public in 1997 after the magazine Weekly Toyo Keizai reported on the suspected fraud. The disclosure intensified scrutiny of Yamaichi’s management and of Japan’s securities-industry governance. Chairman Tsugio Yukihira acknowledged before a Japanese Diet hearing that the activities were illegal, while stating that only three people at the brokerage knew the details. The firm announced on November 24, 1997 that it would cease operations. The Tokyo District Court declared Yamaichi bankrupt on June 2, 1999. Yamaichi’s collapse was one of the defining corporate failures of Japan’s late-1990s financial crisis. Its final president, Shohei Nozawa, publicly apologized in an emotional television appearance. Japanese authorities expressed concern that the failure could further destabilize the country’s already fragile banking and financial system. In 2001, Yukihira settled a civil lawsuit in Tokyo concerning allegations that the window-dressing transactions and illegal dealings had contributed to the company’s failure. Yamaichi no longer operates as an independent securities brand.

Yamaichi Securities was established in 1897 and eventually became one of Japan’s four leading securities brokerages. Its principal customers included major Japanese corporations, placing the firm at the center of the country’s corporate-finance and securities markets. The company’s business combined brokerage with investment-banking and securities-investment activities. During Japan’s financial and property boom in the 1980s, Yamaichi accepted specified sums from ten clients for investment at the firm’s discretion. The subsequent market decline in the early 1990s exposed extensive losses. Poor investment decisions and other dealings produced losses of more than ¥200 billion. Concerned that disclosure would destroy the firm’s reputation and threaten its survival, Yamaichi took on the losses and concealed them outside its ordinary balance sheet. The concealment developed into tobashi transactions, a practice in which losses are transferred among related entities or deferred so that financial statements appear healthier than they are. In January 1992, Yamaichi executives established a separate company called Yamaichi Enterprise. That entity opened an account at the Tokyo branch of Credit Suisse and placed roughly ¥200 billion in Japanese government bonds. Dummy companies and related transactions were then used to generate apparent profits for clients while absorbing Yamaichi’s losses. The arrangement concealed losses of ¥158.3 billion. A second scheme involving foreign-currency bonds hid another ¥106.5 billion through Yamaichi’s Australian subsidiary. The arrangements remained concealed until investigative reporting by Weekly Toyo Keizai in April 1997. The revelation placed the company under severe regulatory, political and public pressure. Tsugio Yukihira, then chairman, acknowledged at a Japanese Diet hearing that the transactions were illegal. He said that only three people at the firm knew the details, identifying himself and former president Atsuo Miki while declining to identify the ten companies involved. Yamaichi announced on November 24, 1997 that it would cease operations. The company’s failure occurred during a period of broader weakness in Japan’s banking and financial system, and the finance minister stated that measures would be taken to limit the damage to the wider economy. Shohei Nozawa, the final president, made a tearful public apology on television, an image that became closely associated with the collapse. The Tokyo District Court declared Yamaichi bankrupt on June 2, 1999. On June 1, 2001, former chairman Yukihira settled a lawsuit brought in Tokyo concerning allegations that the window-dressing tobashi schemes and illegal transactions had contributed to the brokerage’s failure. Yamaichi’s collapse remains an important example of the governance failures, concealed losses and institutional weaknesses exposed by Japan’s post-bubble financial crisis.

• 2001

  Former chairman settles lawsuit

  [1]Yamaichi Securitiesen.wikipedia.org

  Tsugio Yukihira settled a Tokyo lawsuit concerning the transactions alleged to have contributed to Yamaichi’s collapse.

• 1999

  Bankruptcy declared

  [1]Yamaichi Securitiesen.wikipedia.org

  The Tokyo District Court declared Yamaichi Securities bankrupt on June 2.

• 1997

  Investigative reporting exposes the fraud

  [1]Yamaichi Securitiesen.wikipedia.org

  Weekly Toyo Keizai reported on the concealed transactions in April, bringing Yamaichi’s accounting and governance problems into public view.

• 1997

  Operations cease

  [1]Yamaichi Securitiesen.wikipedia.org

  Yamaichi announced on November 24 that it would cease operations.

• 1992

  Yamaichi Enterprise is used in loss-concealment transactions

  [1]Yamaichi Securitiesen.wikipedia.org

  Executives established Yamaichi Enterprise and used related entities in tobashi transactions that concealed securities losses.

• 1990

  Touchwood Pacific Partners private placement

  [1]Yamaichi Securitiesen.wikipedia.org

  Yamaichi sold a private placement in Touchwood Pacific Partners to approximately fifty Japanese institutional or private investors for a Walt Disney film-production investment.

• 1897

  Yamaichi Securities is formed

  [1]Yamaichi Securitiesen.wikipedia.org

  The securities firm is established in Japan and later develops into one of the country’s four major brokerages.

A major Japanese corporate securities house serving large companies, before its collapse during the country’s post-bubble financial crisis.

• Brokerage

  Securities brokerage

  Yamaichi’s core business was securities trading and brokerage in Japan. The firm served large corporate clients and operated as one of the country’s principal securities houses before its 1997 collapse.

• Investment banking

  Investment banking and corporate finance

  The company provided corporate-finance and investment-banking services as part of its role as a major Japanese brokerage. Specific individual offerings are not detailed in the cited reference material.

• Securities investment

  Securities investment activities

  Yamaichi invested funds entrusted by corporate clients and engaged in securities-related transactions. Losses from these activities became central to the firm’s later concealment schemes.

• 1997

  Tobashi transactions and concealed losses

  Yamaichi concealed more than ¥200 billion in losses through off-balance-sheet arrangements. A Yamaichi Enterprise scheme absorbed ¥158.3 billion in losses, while a separate foreign-currency-bond arrangement concealed ¥106.5 billion through the Australian subsidiary.

  Source

• 1997

  Public exposure and parliamentary acknowledgement

  Weekly Toyo Keizai exposed the arrangements, and chairman Tsugio Yukihira later acknowledged before the Japanese Diet that the transactions were illegal.

  Source

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• 1997

  Cease operationsStrategy

  Background

  Investigative reporting and the subsequent disclosure of illegal loss-concealment transactions undermined confidence in the firm.

  Action taken

  Yamaichi announced on November 24 that it would stop operating.

  Aftermath

  The company was later declared bankrupt by the Tokyo District Court on June 2, 1999.

  Source

• 1992

  Use affiliated entities to defer recognition of lossesStrategy

  Background

  After market losses exceeded ¥200 billion, Yamaichi faced the prospect that disclosure would damage its reputation and threaten its survival.

  Action taken

  Executives established Yamaichi Enterprise and used related and dummy companies in tobashi transactions involving Japanese government bonds and foreign-currency bonds.

  Aftermath

  The arrangements concealed very large losses, were exposed in 1997, and contributed to the company’s decision to cease operations.

  Losses concealed through described arrangements. More than ¥200 billion in losses from client-related and other dealings; the cited sources do not provide a comparable pre-scheme financial baseline. → ¥158.3 billion concealed in one scheme and ¥106.5 billion in a separate foreign-currency-bond scheme. (Early 1990s)

  Source

1. 1Yamaichi Securitiesen.wikipedia.org