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Pension Fund Ass'N Seeks Damages From Seibu, Kokudo, Tsutsumi

Posted on: Thursday, 14 July 2005, 12:01 CDT

Jul. 14--TOKYO -- The umbrella body for about 1,400 corporate pension funds filed a suit Thursday against Seibu Railway Co., its parent Kokudo Corp. and Yoshiaki Tsutsumi, the effective owner of the Seibu group, demanding 4.26 billion yen in damages for the investment loss it incurred due to the falsification of Seibu's financial statements.

Filing the suit with the Tokyo District Court, the Pension Fund Association demanded that the three parties compensate for the loss stemming from a dive in the Seibu share price since Oct. 13.

"Seibu Railway has severely undermined investors' confidence in the securities markets," the association said. "In making a restart, the company should compensate in a responsible manner for the damages it inflicted on its shareholders on the basis of its illegal activities." It is rare in Japan for an institutional investor to sue a company in which it invested. The association, which manages 9.9 trillion yen in pension assets, is one of the biggest institutional investors in Japan.

The lawsuit may encourage other institutional investors to take similar actions. The Pension Fund Association for Local Government Officials earlier decided to file a similar lawsuit against Seibu, Kokudo and Tsutsumi.

In a separate suit filed Feb. 1, a total of 211 individual and two corporate shareholders sought a total of 350 million yen in damages from Seibu, Kokudo and Tsutsumi and other former Seibu group executives.

On Oct. 13, Tsutsumi, former chairman of both Seibu and Kokudo, told reporters Seibu had falsified mandatory financial statements, underreporting Kokudo's stake in it. Kokudo is a privately held firm that effectively controls the Seibu group.

The falsification was designed to enable the railway operator to clear a Tokyo Stock Exchange rule that any firm be delisted if a combined stake held in a firm by its top 10 shareholders exceeds 80 percent for more than one year.

As of Oct. 13, the association had 1.87 million Seibu shares.

Although the original combined acquisition cost for the shares was 4.41 billion yen, proceeds from their sales after the disclosure of the falsifications came to only 540 million yen.

The share price plunged after the disclosure. The association sold all of its holdings of Seibu share during the month of November, seeking to minimize losses due to the prospect that Seibu will be delisted shortly.

On Nov. 16, the TSE said it would delist Seibu for the falsifications, and did so Dec. 17.

Seibu stock traded at 1,081 yen just before the Oct. 13 disclosure, but dived to 268 yen Nov. 16, the day the TSE decided to remove it.

At a June 16 court hearing related to the alleged violation of the Securities and Exchange Law, Tsutsumi, Seibu and Kokudo admitted their involvement in falsifying financial statements and insider trading in violation of the law.

Kokudo sold 65 billion yen in Seibu shares to 70 firms prior to Oct. 13, but it later nullified its sales contracts with all the firms as those buyers had no knowledge of Seibu's false reports.

In selling the shares, Kokudo neglected to inform the stock buyers about this background, an action that could constitute insider trading.

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Source: Kyodo News International, Tokyo

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