Japan’s expanding insider trading investigation has now extended to JPMorgan Chase & Co (NYSE:JPM). The bank has been identified as the 2010 source for leaked information in a share offering by Nippon Sheet Glass Co Ltd.
According to Reuters, three people familiar with the inquiry said that officials had concluded that a JPMorgan salesman was the leak’s source by telling the Tokyo-based fund, Asuka Asset Management about it.
This action represents the first time that Japanese officials have included a foreign bank in an investigation. Whether JP Morgan will incur any penalties in Japan remains to be seen and the infrequently imposed insider trading fines in the country are usually just symbolic.
But JP Morgan’s involvement in the inquiry may bring new questions about its internal controls. The bank had been one of two lead underwriters for the sale of Nippon Sheet Glass stock; it has said there haven’t been any accusations of “organizational” involvement in insider trading.
Japan’s securities regulator, the Securities and Exchange Surveillance Commission (SESC), has said Asuka will be fined after it discovered the fund had profited from shorting Nippon’s shares prior to the $505 million share offering in September 2010.
Asuka, a money manager for Japanese pensions and other institutional investors, has said a fund manager had participated in insider trading and he is no longer with Asuka Opportunities Master Trust. As of April, the fund had $288 million (23 billion yen) under management.
Regulators have said a tip on the offering came from an underwriter from the deal but it wouldn’t identify which one, according to Bloomberg. JPMorgan Securities and Daiwa Capital Markets led the offering.
In the two weeks prior to the offering, Nippon Sheet Glass shares dropped by 15 percent prior to the company’s board of directors approving it in August 2010. The sale’s proceeds went to fund capital investment and a China expansion.
Also when the offering took place, Nippon Sheet Glass learned the news of the sale had leaked and requested JP Morgan and Daiwa to hold internal investigations, reported Bloomberg.
Both did not find evidence to support a breach of the “Chinese Wall” which protects confidential information held by underwriting teams away from their sales employees.
In the SESC investigation, it found that Asuka had profited from a JP Morgan employee leak and the agency then believed the firm’s internal review hadn’t been extensive enough; it only took the bank a few days to conduct it.
JPMorgan Chase & Co (NYSE:JPM) said via Bloomberg, “As of this point, we have not been told by regulators that there was any organizational involvement of the company as a whole, or any of its units, in this matter.”
Daiwa has also maintained solid internal controls and no one from the firm had been accused of doing anything wrong.