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2ND LD: Certified public accountant investigated over insider trading.

TOKYO, March 3 Kyodo


A former employee of Ernst & Young ShinNihon, the largest accounting firm in Japan, is under investigation by the government's Securities and Exchange Surveillance Commission for allegedly trading shares using insider information on client companies, Ernst & Young officials said Monday.

The former employee, a certified public accountant in his 30s, has admitted to the allegation, which would constitute a violation of the Financial Instruments and Exchange Law, according to the accountancy firm.

The firm quoted the man as saying he wanted to make up for losses he had incurred from trading in other stocks.

The accounting firm said the accountant traded 300 shares in a company on the Osaka Securities Exchange's Hercules market for start-ups around February 2006 based on insider information his boss gave him when he was with the accountancy firm.

He incurred a loss of about 3 million yen from the transaction, the accounting firm said.

Around March 2007, he traded 261 shares in a company listed on the Tokyo Stock Exchange's Second Section, also based on insider information, and gained about 350,000 yen in proceeds, according to Ernst & Young ShinNihon.

With these transactions, conducted amid declining stock prices, the man ended up with a net loss. He also allegedly traded the shares using an account in the name of a female acquaintance.

He was in charge of auditing the publicly traded company at the time and also falsely claimed to his employer that he had not acquired any shares in the companies he was tasked with auditing.

The securities market watchdog is nonetheless considering recommending that the Financial Services Agency levy a surcharge of about 1 million yen from the man in what would be the first case of insider trading involving a CPA belonging to an auditing firm since the watchdog was created in 1992, according to sources familiar with the matter.

The Japanese Institute of Certified Public Accountants, an industry association, said it has decided to conduct its own investigations into the man's case. If the institute imposes penalties, the man could face being stripped of his CPA status or suspended from providing services.

The man joined Ernst & Young ShinNihon in 2001 and worked as an accountant after obtaining a CPA license in 2005. He left the firm in June 2007 to start his own business.

Ernst & Young ShinNihon traces its history to a company established in 1967. It currently employs around 5,600 people including 2,200 CPAs.

The accountant in question is known to have audited three companies including the two in question while he was with the accounting firm. He told the firm's investigators that there were no other illicit transactions, the firm said.

Just on Friday, the securities market watchdog recommended the FSA levy a surcharge of 261,000 yen each on two reporters and a director of public broadcaster NHK, saying they were separately engaged in trading in shares of food-servicing companies by using information about an equity partnership these companies were about to implement.

This was the first case of insider trading involving reporters as determined by the Securities and Exchange Surveillance Commission.
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Publication:Japan Weekly Monitor
Date:Mar 9, 2008
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