If you haven’t already heard, news broke a week or two that a small firm based in Kawasaki, Teramento (テラメント) Corporation falsely reported to have acquired a 51% stake in six large (giant) Japanese companies: Sony Corporation; Toyota Motor Corporation; Nippon Telegraph & Telephone Corporation (NTT); Fuji Television Network Inc.; Mitsubishi Heavy Industries Ltd.; and, Astellas Pharma Inc. (ソニー、トヨタ、ＮＴＴ、フジテレビ、三菱重工、アステラス製薬). The reports were made through the Finance Service Agency’s online electronic database, EDINET, on January 25th, totaling a whopping 20 Trillion yen (20兆円, US$190 billion) of securities filings.
Between the falling Nikkei, rapidly fluctuating foreign exchange rates, French rogue traders, and not to mention the rest of the world suffering due to the subprime mortgage crisis, perhaps Teramento’s head and only employee, Shigeru Yamaguchi, thought no one would notice. Obviously the six companies who have apparently had their majority stake seized by some small, random company in Kawasaki were going to, and no doubt have been puzzled by Teramento’s filings. Teramoto it seemed grew an impressive portfolio overnight!
It has been reported that Yamaguchi executed the orders through Lehman Brothers Holdings Inc., though no one from Lehman’s has said to have received such instructions.
So, the question on everyone’s lips is, why? No matter which way you look at it, it appears to be an amateurish scheme to draw attention, and one cannot help but think that Yamaguchi will end up as nothing more than a laughing stock. The FSA (金融庁, “kinyucho”) ordered Teramento to submit correction reports by January 28th given that there is no evidence of share certificates issued of the alleged acquisitions, but still nothing has been given. Making false shareholding filings can bring a maximum 5-year prison sentence or fine of 5 million yen, perhaps a bit much for a company with capital of only 1000 yen, but then again, has apparently 100 trillion yen worth of “oil money” at their disposal. While the FSA has not decided whether to treat the incident as a criminal matter, given reports that Yamaguchi has apparently refused to submit corrected reports, the FSA may have no option to pursue such a course of action.
Here is the news clip trying to explain what happened. They interview the owner of Teramento and he denies that his report to the FSA is false. It is quite amusing, although doesn’t shed much light on his bizarre claim:
But will the FSA do so? In what appears to be a very obvious stunt, performed by a man who seems to be in need of mental therapy, it’s the FSA that may end up with more egg on their face than Yamaguchi.
It is Yamaguchi’s actions that have certainly brought forward the issue as to whether the self-reporting system could be used to manipulate the market. While in this instance, the filings appeared online after the market closed, one must wonder what could have happened had the filings been made public during market hours, considering that EDINET filings are scanned regularly for evidence that hedge funds or other buyers are targeting a company, and investors often trade off the information such filings contain.
Given the stigma associated with the aggressive nature of some foreign hedge funds and other private equity groups whom have up until now been foiled in their attempts to acquire large stakes in Japanese companies, it makes for a different perspective on what could happen to the market if local investors decided to go hostile.
The FSA now must go back to the drawing board and review their filing procedures, examining how to control and regulate the self-reporting system. Though in their own admission, they did not have the staff to check every report, which makes you wonder what could happen if companies and individuals wanted to willfully abuse the system, publishing false reports, even far less blatant than Teramento’s, to achieve their own ends.
So while we can all agree that Teramento, involved in the automobile industry, telecommunications, electronics, nuclear power, broadcasting, pharmaceuticals and aerospace, is just a smoldering pile of BS, they have at least taken the wind out of the FSA and their not-so-trusty self-reporting EDINET system. The effect has been somewhat similar to the effect of “Telament” (perhaps the source of inspiration for the company’s name???), a drug which helps prevent cramping in new born babies by breaking down bubbles and taking the wind out of them (a bit of advice for all those that are pregnant in Japan!