Saturday May 26, 2012

JAPAN NEWS AND DISCUSSION

AIJ suspended amid probe into Y183 bil pension fund loss

Crime Feb. 24, 2012 - 03:50PM JST ( 38 )

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38 Comments

2

GWFeb. 24, 2012 - 01:49PM JST

oh no! Here we go!
2

ExportExpertFeb. 24, 2012 - 01:51PM JST

Tip of the Iceberg !

Pension funds are all scammed, after all it is nothing more than a govt Ponzi scheme.
0

LagunaFeb. 24, 2012 - 01:55PM JST

Wow: start turning over the rocks and look what you find! This could happen in any country - Bernie Madoff comes to mind - but still, "a reputation as one of the few asset managers to deliver positive annual returns" should have beckoned earlier, stricter observation by those in charge.
7

DisillusionedFeb. 24, 2012 - 02:00PM JST

"The company mostly controls group pension plans for small and midsize businesses in industries such as trucking, construction, electrical work and plumbing,"

Hello! Anybody else smell Yakuza?
3

marcelitoFeb. 24, 2012 - 02:02PM JST

Agreed - this is not limited to AIJ or Olympus only - seems like falsifying financial reports and lying to investors and the markets has been standard practice here for a while...( not that this is limited to Japan only, to be fair )...Here come the deep bows and " moushiwake arimasen"`s
1

tokyokawasakiFeb. 24, 2012 - 02:17PM JST

The biggest scams and crooks will be found when someone or some independent panel starts to investigate the local and national government finances...
1

CrickyFeb. 24, 2012 - 02:19PM JST

This is getting serious, can anyone trust the books? What happens to the thousands/ millions of people who have paid in expecting a pension? The loyalty of Joe average has been rewarded again with lies, deception and plea for understanding for greed, incompetence. They say that Japans debt is different because it's held by locals, turns out it's worse as that debt is now magnified by becoming a much much larger debt. A house of cards benefiting the feudal overlords.
1

ElvensilvanFeb. 24, 2012 - 02:20PM JST

lost most of the 183 billion yen

Maybe the messenger boy dropped it when he passed by McDonald's for breakfast.

Seriously though, 2.3 billion yen is a very large amount to simply "lose". Considering it took years before getting uncovered, the one who balances their books did a very impressive job of hiding the figures.

120 clients and managed 183.2 billion yen of assets

Should each of the 120 companies file a case, AIJ would be in debt for many years.
1

CrickyFeb. 24, 2012 - 02:20PM JST

No wonder the Last Gov lost all those pension records!
0

MasterBapeFeb. 24, 2012 - 02:27PM JST

Cricky's probably right. I mean, the hours some people work here with morale already quite low, mistakes will happen. Then again, could all be on purpose...
0

JapanGalFeb. 24, 2012 - 03:09PM JST

I wonder if my pension monies are in that fund?
3

RecklessFeb. 24, 2012 - 03:09PM JST

Damn! I'll manage my own money thankk you very much! Cash under the mattress is sounding pretty attractive!
-2

gogogoFeb. 24, 2012 - 03:14PM JST

You think Japan would have learnt from cooking the books in the 90's ... but I guess not....

that smell? Books a cookin'
2

smithinjapanFeb. 24, 2012 - 03:29PM JST

“The FSA, together with the labor ministry, will take every possible step to prevent this kind of incident from happening again,”

Here's one idea that may help: instead of simply suspending a company FOR A MONTH you close it down PERMANENTLY and jail the people responsible (you know, it being one of the biggest scandals involving said monies, and surely hurting the Japanese reputation yet again). No surprise, though -- yet ANOTHER scandal here.
1

sillygirlFeb. 24, 2012 - 04:28PM JST

OMG and as mentioned this is going to happen again and again until everybody comes clean. i can see years of this crap. i have always wondered where companies/people got all the money they seemed to be spending. here`s my answer.
4

bookowlsFeb. 24, 2012 - 04:44PM JST

My wife lost her pension to this company and STILL thinks it's okay! Obviously lacks a credibility of business dealings. I don't pay into the pension scheme, health insurance scheme or any other scheme here. I privatized my insurance and pension years ago - I will never trust a Japanese company with my money, as this story says it all!
3

walteryFeb. 24, 2012 - 07:42PM JST

Absolutely disgusting! I had such expectations of honourer and loyalty integrity when I came to Japan. All I have herd and seen since I came is dishonesty fraud and incongruity. The government is over full of dysfunctional dementia clients, The world Sumo is just a cross between Kabuki and Pachinko, Corporate Japan looks more like and African Charity every day. As Japan s population ages and contracts the debt grows the infrastructure crumbles, its reminiscent of the path of the Greek civilisation on overdrive, as they are now holding a begging bowl with no assets and little more than a few goats and olives while they cling to myths and and memory's of what once was. Honestly! clean yourself up Japan get those sleeping old codgers out of the way and let the young steer this country toward prosperity before its to late. Do a Fuji not a Kodak!
4

David ChiangFeb. 24, 2012 - 08:15PM JST

I foresaw a day like this coming. Japan has always been an "old-boys network" and we are beginning to see the type of debt and destruction they are leaving behind. This country does not lack transparency; there is no transparency! Not in business or in the government. I truly do love this country, but there needs to be major change on all fronts. Japanese citizens need to stop being so complacent and comfortable and find out how poorly they are being treated.
1

gyouzaFeb. 24, 2012 - 08:39PM JST

This is actually difficult to do. The investment management company only manages the money, with the actual assets being held by a custodian bank. The custodian and the investment management report independantly to the pension fund owner (the company who "trust" their money to be managed by the investment firm).

I'm really curious how this one panned out. It is dificult to believe that this is anything to do with old boys networks, but more of very bad accounting, and possibly the same accountant firm at both AIJ and the custodian banks. Definitely not incompetance though - just too big, someone would have spotted it (there are enough checks mandated by law to catch big losses).

Lets lay off the Japan bashing for now, as Enron, Madoff, UBS etc, are examples of lunacy or corruption that didn't happen here, and happened big time!!

@bookowls - this IS a private pension scheme, and no matter what form you deligate it to, you could be at risk of the same issue. The only way to be sure not to be subject to same risk is to maange the investments directly yourself, which is actually a full time job.
1

CrickyFeb. 24, 2012 - 09:14PM JST

There is no active over site , the legal checks and balances are ignored as is now being exposed over decades. Independent auditors are not at all! The stock exchange look the other way even after exposure. The government either is incapable ( lost records, or made none) or complicit in the deceit of it's own citizens on a scale that dawarfs previous scams and we know that this is just the tip of it. It's a real struggle to find any positives besides...it's traditional any more.
0

SerranoFeb. 24, 2012 - 09:16PM JST

I don't expect to ever see even one yen from all the money I've been forced to put into my pension fund.
0

gyouzaFeb. 24, 2012 - 09:47PM JST

@cricky - there is a lot of oversight and I've been on the receiving end of it. That is why the FSA found this and shut it down. You are right to question the auditors, but neither the stock exchange nor government are at fault IMHO. The money is from private company pension schemes, that gets farmed out to investment management firms. As I mentioned earlier, the key player is the custodian bank, the guy who physically holds the assets (i.e. stocks/bonds/cash/etc), as the firms who farm out to the investment firms usually give ALL the money to one custodian, then divide the money amongst different investment management firms to ensure diversity (i.e. not putting all their eggs in one basket). This either happened very very quickly, or the custodian is also at fault. I'm intrigued to learn more.

@serrano - assuming you have paid into a scheme on a regular basis you will get something back, but unlike the good old days (defined benefit), most people have to settle for defined contribution, and yuo are at the mercy of the markets as to whether your pension grows in value or not.
0

herefornowFeb. 24, 2012 - 10:41PM JST

@cricky - there is a lot of oversight and I've been on the receiving end of it. That is why the FSA found this and shut it down.

gyouza -- horse feathers. There is lots of reporting in Japan, but no real pro-active oversight nor aggressive prosecutiuon. What's more the FSA did not "find" this, it was brought to their attention, just like Olympus was, and then they started their investigation. The FSA does not view itself as an agency who's primary responsibility is to protect the investors/public. And, until it does, these kinds of incidents will occur with regularity and cooking the books in Japan will be the rule, rather than the exception.
0

presto345Feb. 24, 2012 - 10:56PM JST

“The FSA, together with the labor ministry, will take every possible step to prevent this kind of incident from happening again,”

One step behind seems to be the 'every possible step'. I love Japan (too), but fail to understand why so many tax funded officials are asleep on their jobs, doing nothing until jolted awake by an impending disaster.
0

cornbread1Feb. 24, 2012 - 10:58PM JST

Madoff take II...and there will be many more, sadly.
1

MeanRingoFeb. 24, 2012 - 11:02PM JST

Japan is fracked. Just fracked. The scary thing is that even if you could remove the old codgers in power, the youth are so complacent and apathetic that it may just do more harm than good. Boiled frog anyone?
1

gyouzaFeb. 24, 2012 - 11:12PM JST

@thereforenow

gyouza -- horse feathers. There is lots of reporting in Japan, but no real pro-active oversight nor aggressive prosecutiuon. What's more the FSA did not "find" this, it was brought to their attention, just like Olympus was, and then they started their investigation.

Hmmm, do you work in the industry? I have for 25 years, 18 in Japan, and I know what the FSA is like, having been inspected by them three times! There IS an issue here, but it is not complacency on the FSA's behalf. When they came into being 15 years back, the whole industry changed as suddenly there was someone to be scared of, the old MOF inspections were, hmmm, not very good!

Olympus was a firm hiding its own losses - relatively easy to do compared to a money manager (they don't actually hold the money) losing other peoples money. To lose such a vast amount is amazing, and as said before, the custodian bank that also has a fiduciary duty to the pension schemes needs to be examined. Not pointing the finger at them, but there are a lot of blank areas on this issue.
0

napoleancomplexFeb. 24, 2012 - 11:16PM JST

perhaps its time the Japanese people (if they haven't already) start taking their own retirement savings into their own hands a la american style 401(k) plans or canadian RRSP style retirement savings plans.. in this day and age its absolutely insane to think that once you retire, the gov't will simply take care of you. Having ultra low interest rates don't help either.. at least in Canada, most pension funds have strict rules to what they can invest in, mostly government bonds and these low rates are seriously hurting their returns.. just a thought
0

gyouzaFeb. 24, 2012 - 11:52PM JST

@napolean

perhaps its time the Japanese people (if they haven't already) start taking their own retirement savings into their own hands a la american style 401(k) plans or canadian RRSP style retirement savings plans..

Even a 401k plan wouldn't protect you from what happened here. These are not state related pension plans, they are corporate ones, and even if private, no guarantee taht the manager of the plan wouldn't do the same thing. No guarantee here, no guarantee in the US or Canada.

It is stupid.
1

nigelboyFeb. 25, 2012 - 12:01AM JST

perhaps its time the Japanese people (if they haven't already) start taking their own retirement savings into their own hands a la american style 401(k) plans

Didn't the employees at Enron lose all of its pension because of this?
0

NewsmanFeb. 25, 2012 - 12:11AM JST

Does anyone know what the acronym AIJ stands for? All I've been able to find is Architectural Institute of Japan; somehow, I don't think that's it ...
1

napoleancomplexFeb. 25, 2012 - 01:11AM JST

@ gyouza: Well, I'm not very familiar with the 401(k) but in Canada, the RRSPs (registered retirement savings plan) allow you to contribute a portion of your earned income into it, and you get back a tax refund because any contributions allow you to reduce your taxable income for that year (tax deferred until you withdraw from the plan). I'm assuming you don't know all this... but if you do, my apologies!!

RRSPs aren't managed by the company you work for, its a completely separate entity and different from a company pension plan. Whereas a company pension plan is administered by some third party, you are basically in control of your RRSP unless you delegate this to a financial planner or investment advisor. You can invest the money in your RRSP into basically anything you want: stocks, bonds, preferreds,mutual funds, options, etc

The government sets a limit each year to what a person can put into this account but you can also carry forward any unused contribution room into the future. In theory, it's an effective method of saving for retirement because any capital gains you make aren't taxed but any losses can't be used either to offset gains in a regular investment account. You pay taxes on any amount you withdraw from an RRSP as this money is added to your taxable income for the year.

Not sure if something like this available in Japan.. not to say that this completely eliminates the need for a company pension, having a well managed RRSP should reduce the reliance on government and private pension plan
0

gyouzaFeb. 25, 2012 - 03:03AM JST

Hi napolean, I'm familiar with the format, there are many options like this under the defined contribution method of pension plans. Sadly though, although you think you are in control, there is always a third party (multiple) involved that actually interfaces into the market (unless you are personally registered to deal in stocks, etc) and another that acts as custodian. These are the components that failed here, and could fail in US, Canada, or anywhere else. The government or private pension schemes weren't at fault, the bit underneath was. Luckily for the pension plans, they diversify investment strategies so only a portion of the entire plan is lost, it is still a major failure of the system in general though.

It can be quite complex, not sure if I am explaining in enough detail! :(
1

napoleancomplexFeb. 25, 2012 - 03:35AM JST

Its a good explanation. I work for brokerage in Canada.. and we manage RRSPs (among other accounts) for clients. In our case, clients deposit funds into their accounts and we make recommendations based upon their risk tolerance, investment objectives, etc.. the way it SHOULD be done, but there are brokers who don't always follow these guidlines, which gives this industry a bad name. You are right about the third party stuff.. us advisors interact with the market and the brokerage firm acts as the custodian of the accounts. Clients aren't protected if a company goes bankrupt but if a brokerage firm goes under, there is protection, federally mandated by the government of Canada. That all being said, we don't deal with pension plans directly nor make any recommendations for their investments.

The pension plans and their administrators need to follow strict guidelines. No idea what the hell these fools were doing, and this is conjecture, but to piss away someone's retirement savings on some exotic investments that are probably not suitable for anyone contributing to the plan is just criminal!
0

Patrick HaggerFeb. 25, 2012 - 05:33AM JST

Universal problem but personal to everyone that lost their own savings and retirement
-1

herefornowFeb. 25, 2012 - 11:22AM JST

gyouza -- wow, you actually had your books checked every SIX years. You're right, that's real scrutiny if I've ever seen it. PLEASE, to compare Japan's corporate reporting regulations, and more imporatantly, the penalties associated with breaking the rules, to somewhere like the U.S. is laughable. And, respectfully, I stand by what I said about the FSA. It goes through the motions to provide assurance to potential investors, but it has absolutely no real investigative function like the SEC does. The are like cops at a koban -- they only move when forced to -- and call out the press so thye can cover them marching in with the brown boxes. It is pure PR.
0

gyouzaFeb. 25, 2012 - 02:53PM JST

@herefornow OK, so had the FSA begun there inspection regime, and had I been in the same firm since the time I came to Japan then your maths would be correct, but they didn't and I have moved firms a few times since being here.

Try not to compare to US though, with Enron and Madoff outdoing anything anyone else has ever done.

I don't want to sound rude, but I think that you missed my points about the issue being deeper and the role of the custodian of assets in this issue is a concern (actually, not unlike the Madoff case). If people want to commit crimes, they are going to do it despite any regulatory presence - they will just find a way around it.

I probably can't convince you of what an FSA/SESC inspection is like, but please take my word, they are very stressful 3 month periods, and very detailed. The inspection cycle is about a 3 year cycle and was much tougher and frequent than anything I recall from my UK days.
1
denmakFeb. 27, 2012 - 03:19PM JST
Gyouza is spot on on every single comment:
- FSA inspections are one of the most harrowing experiences for any financial institution. The FSA and their sub-branch of the SESC are extremely thorough in their inspections and they HAVE shut companies or lines of businesses down in the past (Citibank)
- The 1 month shutdown for AIJ is only during the investigation. It does not in ANY sense imply that AIJ will be allowed to resume operations.
- The penalties and sanctions in Japan are at least (if not more) restrictive than anything the SESC or the U.K. FSA has dreamed of. Consider also that Japan has seen nothing of the scale of Enron, Madoff, AIG, LBI or WorldCom size disasters
- The FSA and SESC are absolutely A-N-A-L about fiduciary duties particularly to pensions and retail clients. You might be able to get away a bit lighter with financial institutions' assets (they are QII after all)
- Anyone who claims there is no oversight in Japan really doesn't have a clue on what they're talking about. All the way from the type of licenses, the gaimuin exams for sales, the registrations of sales staff, the multiple reports maintained and submitted for all depts., ops risk reports, compliance reports, trade details, technology risk...not to mention the Day 1 & 2 packages for inspections. There is a reason why Compliance is one of the largest depts. in financial institutions and usually the most stressed out.
- Cheaters will always find a way to cheat...and will be caught.