Former Nomura Securities Co. president Hideo Sakamaki confessed to authorizing subordinates to make $328,000 in illegal payoffs to a racketeer, according to Japanese media, which cited prosecutors.
Mr. Sakamaki made the confession during questioning with prosecutors, who arrested him Friday on suspicion of authorizing lower-ranking employees to pay hush money to Ryuichi Koike, a reputed "sokaiya," or corporate blackmailer, the reports said.
Tokyo prosecutors weren't available to comment.
A confession from Mr. Sakamaki could persuade regulators to dole out a harsh punishment for the brokerage's involvement in one ofJapan's largest financial scandals.
The timing is particularly bad for 71-year-old Nomura. That's because Japan is promising sweeping deregulation of its financial markets, and authorities are eager to prove they have what it takes to police a free market after years of lax regulation.
Today former executives will testify before the lower house of Japan's parliament. Also testifying will be executives of Dai-Ichi Kangyo Bank who have tendered their resignations amid charges it lent $260 million to Mr. Koike.
If regulators find evidence of wrongdoing, the Ministry of Finance could order Nomura to stop selling to institutional customers and trading on its own accounts. Most analysts have predicted the ban would be for three months rather than the maximum of six months.
Even the lesser of the two punishments would wipe out hundreds of millions of dollars in income. Revenue from in-house trading alone accounted for $1.8 billion, or one-quarter of Nomura's total revenue, in the year ended March 1996. The losses would compound an already-serious drop in income as a handful of former clients bar Nomura from issuing their new securities and refuse to trade stocks and bonds through the brokerage.
The last time the Finance Ministry ordered Nomura to halt operations was in October 1991, after the company admitted lending $125 million to a gangster to buy shares of Tokyu Corp., a railway operator.
The ministry shut down retail sales operations for up to six weeks at 87 of the 153 offices it had. That cost the brokerage about $36 million, analysts said.
The damage was light because Nomura was able to channel some of its business to branches that remained open. If the government told it this time to close down entire lines of business, the damage could be heavy.
Still, analysts and investors say Nomura will come roaring back to recapture lost market share after undergoing whatever penalties are imposed.
Clients will find it tough to stay away. The company boasts research skill and marketing muscle that have made it the largest brokerage in the world in terms of capital base.
Its sales force is legendary for relentless pursuit of customers, from pension funds managers to housewives. Its more than 900 analysts have been rated Japan's best research department by Institutional Investor three years in a row.
As of Tuesday , Nomura's shares had fallen 13% since the scandal came to light in March. Meanwhile the benchmark Nikkei 225 index had gained 14%.