Exclusive: Japan insider probe snares JP Morgan

Tue May 29, 2012 10:16am EDT
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By Emi Emoto and Chikafumi Hodo

TOKYO (Reuters) - Japan's widening probe of insider trading reached JP Morgan Chase & Co (JPM.N: Quote) on Tuesday as the embattled U.S. bank was identified as the source of leaked confidential information regarding a planned share offering by Nippon Sheet Glass Co Ltd (5202.T: Quote) in 2010.

Three people with knowledge of the probe said officials had determined that a JP Morgan salesman had been the source of the leak about the offering to a Tokyo-based fund, Asuka Asset Management.

The development marks the first time a foreign bank has been caught up in an investigation by Japanese officials that has put the spotlight on what insiders and regulators say had become a near-endemic practice in the Tokyo market.

There is no indication JP Morgan will face any penalty in Japan. Insider trading fines, even when imposed by Japanese regulators, tend to be token.

Even so, the revelation of JP Morgan's involvement in the probe could raise new questions about the internal controls of a Wall Street bank already under scrutiny after reporting a trading loss of at least $2 billion in the "London Whale" case.

JP Morgan, one of two lead underwriters for the Nippon Sheet Glass stock sale, said it had not been accused of any "organizational" involvement in insider trading.

Japan's securities watchdog, the Securities and Exchange Surveillance Commission (SESC), said it was seeking a fine against Asuka after finding the fund had profited by shorting the glassmaker's shares ahead of a $505 million share offer in September 2010.

Regulators said a tip on the share offering came from one of the underwriters of the deal without naming the broker. The share offering was led by JP Morgan Securities and Daiwa Capital Markets.   Continued...