Japanese regulator takes action on the sale of securities

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Following our recent alert concerning sanctions on improper securities solicitations by firms registered as investment advisors in Japan, on October 20, 2009 the Tokai Local Finance Bureau ("TLFB") issued another administrative disposition against Diamond Office K.K. ("Diamond Office"), a registered investment advisor.
 
The disposition indicates Diamond Office solicited the sale of tokumei kumiai ("TK") interests to at least five investors in the period from early May 2009 to June 3, 2009 and thereafter executed a TK agreement with at least one of them. The TLFB noted that such solicitation activity requires registration as a Type II Financial Instruments Business Dealer and was improper.
 
As a result, the TLFB concluded that Diamond Office's activities are in violation of Article 29 of FIEL (the Financial Instruments and Exchange Law provision that requires persons soliciting paragraph 2 securities to have a Type II FIB registration) and imposed sanctions in the form of (i) a business suspension order of three months, and (ii) a business improvement order requiring Diamond Office to improve its compliance awareness and customer protection policies.
 
Following closely after the ISO case briefed in our prior alert, the Diamond Office case suggests that Japanese regulators are focusing their attention on ensuring that registered investment advisors conduct their regulated businesses strictly within the scope of activities permitted to investment advisors and refrain from securities solicitation activities of any sort.
 
We will continue to monitor this enforcement initiative and issue supplemental alerts as needed.