The Tokyo financial center is experiencing one of the biggest financial scandals in its history.

On Thursday, prosecutors filed charges against securities firm SMBC Nikko Securities and five employees.

The indictment accuses them of market manipulation.

The financial house is said to have boosted the share prices of certain companies by placing buy orders in the evening before selling the shares in block trades on behalf of clients the following day.

It is the first time that a Japanese securities firm has to answer for suspected market manipulation.

At the same time, SMBC Vice President Nikko was arrested.

Toshihiro Sato is responsible for the equities business.

SMBC Nikko is the securities arm of Sumitomo Mitsui Financial Group, the second largest bank in Japan.

Patrick Welter

Correspondent for business and politics in Japan based in Tokyo.

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The charges come after months of investigation.

Four of the five accused had already been arrested 20 days ago, sparking outrage in financial circles.

The accused are American Trevor Hill, SMBC Nikko's head of equities, his British deputy Alexandre Avakiants, Japanese head of equities trading Makoto Yamada, and managers Teruya Sugino and Shinichiro Okazaki.

If convicted, the accused face fines and up to ten years in prison.

In extreme cases, SMBC Nikko can be fined up to 700 million yen (5.3 million euros).

Some observers, such as attorney Stephen Givens, who works in Japan, doubt that the alleged offense is a criminal case.

Because the accused include foreigners, Japan is once again facing an international debate about how to deal with the accused and suspects.

The accusation of hostage justice was particularly prominently represented by former Nissan boss Carlos Ghosn, who was arrested in 2018 and later escaped prosecution in Japan by fleeing to Lebanon.

Already there are reports of hour-long interrogations and intimidating behavior by financial regulators.

An SMBC Nikko stockbroker died last year of a brain aneurysm after multiple interrogations that lasted up to 10 hours.

The securities firm then filed a complaint with the financial regulator, reports the business newspaper "Financial Times".

Defendants deny allegations

For outsiders, it is difficult to understand from the sparse information whether the accused have exceeded the limits that justify the charge of market manipulation.

Authorities have not commented on whether the accused have pleaded guilty.

Japanese media reports that the four previously arrested, including Hill and Avakiants, denied the allegations.

It is said that they acted within the scope of their legitimate duties.

Vice President Sato reportedly told investigators that he was not aware of any wrongdoing.

According to media reports, he is suspected of having placed large buy orders for a share on April 8, 2021 in order to stabilize the market price before a block sale of the share certificate.

The open question is whether such buy orders for proprietary trading help to avoid excessive price fluctuations around block sales as part of market making.

The prosecution's view is that SMBC Nikko deliberately pushed up share prices to secure block sales at certain prices.

In its own interest, the securities firm would have manipulated share prices in order to collect transaction fees.

Customers are already turning away

"We cannot deny that there have been shortcomings in our regulatory monitoring," SMBC Nikko said on Thursday.

One is aware that one bears responsibility as a company.

As usual in Japan, SMBC apologized to Nikko for causing such serious problems.

The company is already suffering from the flight of customers in the course of the investigation.

With the company's indictment, the investigation could expand to other areas of its business.

A veteran of Tokyo's financial market described SMBC Nikko as the industry's "unloved child" compared to market leaders Nomura Securities and Daiwa Securities.

Defendants Hill and Avakiants have played a key role over the past few years in helping the securities firm build a strong international presence beyond the Japanese horizon.

In 2012, the financial regulator SMBC fined Nikko for insider trading.