Daiwa Said to Cover Up $1B Trading Loss

month portrays an institution determined to keep quiet more than $1 billion in unauthorized trading losses. The conspiracy allegedly began on July 21, when Daiwa's president in Japan received a letter from New York bond trader Toshihide Iguchi, who confessed to losing $1.1 billion from illegal trades. The government claims that the bank, rather than going straight to the Federal Reserve Board, tried to hide the losses. Daiwa didn't notify the Fed until Sept. 18. The government supports its case by referencing a series of letters and meetings between Mr. Iguchi and top Daiwa officials discussing ways to prevent U.S. regulators from learning of the losses. In fact, the government says the first suggestion for a cover-up came the very day Daiwa's president learned of the loss. Mr. Iguchi proposed hiding the loss in his original July 21 confession letter, according to the indictment. Daiwa executives allegedly agreed. Three top Daiwa officials phoned Mr. Iguchi on July 24 from Japan to ask for his help in bailing the bank out, the government alleges. He responded in writing the next day, suggesting that Daiwa avoid detection by moving the loss to the books of the home office in Japan. Mr. Iguchi and three top bank officials met July 28 at the Parklane Hotel in Manhattan to discuss his plan, the government claims. Daiwa officials tried to devise a strategy for buying securities that could replace the ones Mr. Iguchi sold to cover his losses. As part of this scheme, they allegedly filed a false call report with the Federal Reserve. In order to pull this off, Daiwa officials allegedly pretended to lend $600 million to its international treasury division, which in turn pretended to buy $600 million in securities that Mr. Iguchi had lost. Prosecutors didn't limit their attack to the $1.1 billion loss. They also charged that the bank consistently lied to the Fed from 1986 to 1993 about conducting securities trading from its downtown branch, going as far as disguising the trading room as a storage closet during Fed exams. They also charged that the bank broke the law in 1993 when it told the Fed that Mr. Iguchi no longer supervised traders. The government alleged Mr. Iguchi continued in that role until September 1995.