Subject: [cwj 113] Daiwa Officials Fined Millions
From: Corporate Watch in Japanese <cwj@corpwatch.org>
Date: Fri, 22 Sep 2000 16:02:35 -0700
Seq: 113
Daiwa Officials Fined Millions =20 By Akiko Kashiwagi =20 Special to the Washington Post =20 Thursday, September 21, 2000;=20 TOKYO, Sept. 20 -- A Japanese court ordered current and former top executives of one of the country's largest banks to pay the bank $775 million in damages because of their failure to properly oversee a New York-based trader who engaged in illicit trading that resulted in huge losses. =20 The award is the largest ever in a shareholder lawsuit filed against individuals in Japan. Many experts interpreted it as a landmark case that sets a precedent for liability of Japanese executives in an economy where group accountability has long superseded individual blame. =20 In issuing a judgment, Mitsuhiro Ikeda, the presiding judge at the Osaka District Court, said that "the risk-management mechanism at the Daiwa Bank was not effectively functioning" and that directors had failed to meet their oversight responsibility. =20 Nihon Keizai Shimbun, Japan's leading business daily, called the case a "grave warning for a loose risk control" of Japanese companies. The case had been brought against nearly 50 board members by two individual shareholders who sought compensation for $1.1 billion in trading losses and for $340 million in fines that the bank paid to U.S. regulators when they shut down Daiwa's New York trading operations five years ago. A New York-based Daiwa trader had been engaged in unauthorized bond trading and a coverup of losses by fabricating documents for 11 years beginning in 1984. After the trader confessed to Daiwa's president in a letter, senior management waited for two months to notify U.S. officials, or more than a month after it notified the Japanese Finance Ministry of the loss. U.S. regulators ordered the bank to pull out of the United States in November 1995. The trader was convicted of securities fraud and jailed in 1996. Among 11 executives found liable today, the former New York branch head was judged to be solely responsible for the lack of risk management and ordered to pay the bank $530 million. Others, including the current president of Daiwa, were charged collectively for their failure to promptly report the incident to the U.S. authorities. The news comes as a number of high-profile Japanese companies have been entangled in scandals that have resulted from lax management, most notably Bridgestone/Firestone Inc. Indeed, Japan has recently seen a series of embarrassed company presidents apologize for improper oversight of their employees in cases ranging from Snow Brand Milk Products Co.'s food contamination and Mitsubishi Motor Corp.'s coverup of customer complaints to JCO Co.'s nuclear accident. In each of these cases, the typical pattern has been for top executives to resign to take responsibility for employees' misconduct before conducting a thorough review of what exactly went wrong. Today's ruling suggests that a contrite bow and resignation may not be enough. Though still rare, the number of shareholder lawsuits has been on the rise in recent years. Some lawyers said today that the decision would have a huge impact on the business community as it brings home to Japanese executives the depth of management responsibility. "It's a milestone case as the court ordered an unprecedented level of penalty" for individual executives, said Toshiaki Hasegawa, a lawyer and expert on crisis management. The lawyers for the defendants said they plan to appeal the ruling. =20 =A9 2000 The Washington Post Company=20 FAIR USE NOTICE. This document contains copyrighted material whose use has not been specifically authorized by the copyright owner. Corporate Watch in Japanese is making this article available in our efforts to advance understanding of ecological sustainability, human rights, economic democracy and social justice issues. We believe that this constitutes a 'fair use' of the copyrighted material as provided for in section 107 of the US Copyright Law. 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