Shareholders sue former Toshiba officers for damages in Tokyo and Osaka District Courts
In previous updates, we have reported on the accounting irregularities at Toshiba Corporation (Toshiba), in which Toshiba admitted that it had misstated its group pre-tax profits by a total of JPY 224.8 billion (US$ 1.89 billion). As foreshadowed in last month's update, on 30 November 2015, 50 shareholders sued five former officers of the company in the Tokyo District Court, in the amount of approximately JPY 300 million (US$ 2.43 million). This sum was claimed in damages for the losses arising from the abrupt fall in the company's stock price as a result of the illicit accounting practices in which Toshiba had engaged. The action is brought against three former presidents, Atsutoshi Nishida, Norio Sasaki and Hisao Tanaka, and two chief financial officers, Fumio Muraoka and Makoto Kubo.
On 7 December 2015, a further 45 shareholders brought a second action in the Osaka District Court, this time for approximately JPY 173 million (US$ 1.46 million), again for damages arising from the plunge in the company’s share price. The Osaka proceedings are against Toshiba as a corporate entity, as well as the same five officers as the Tokyo proceedings. The shareholders claim that the illicit accounting practices had a significant impact on Toshiba's share price, and that the former executives actively misled investors.
Administrative action against Deutsche Securities Inc.
Japan's Securities and Exchange Surveillance Commission (SESC) has found that Deutsche Securities Inc. (Deutsche Securities), Deutsche Bank AG's Japanese brokerage unit, violated the Japanese Financial Instruments and Exchange Act (FIEA) as a result of mishandling corporate information. On 8 December 2015, the SESC recommended that the Japanese Financial Services Agency (the FSA) should take administrative action against Deutsche Securities accordingly.
On 15 December 2015, the FSA issued a Business Improvement Order against Deutsche Securities under Article 51 of FIEA. In addition to a specific finding that an analyst had improperly shared information on a company’s earnings in order to solicit a client, the FSA found inadequacies in the company's system for managing "corporate information", defined as non-public material information affecting investors' decision-making, or related to implementing or cancelling tender-option bonds. Problems included failure to review whether information fell under the definition of corporate information, mis-classification of information as falling outwith the definition, and a consequent failure to report to relevant officers.
The requirements of a Business Improvement Order include developing preventive measures, and ensuring that they are implemented; regular review of these measures and rectifying any identified inadequacies; improved compliance awareness throughout the company; and improvement of the internal control environment, including by demonstrating a clear commitment to compliance at the highest levels of management.
This regulatory action has revived concerns about the governance climate at Deutsche Securities two years after it was sanctioned for excessive spending on client entertainment.