AIJ Investment Advisors Co. transferred huge sums in corporate pension assets it manages to a fund in the Cayman Islands and then moved the money to the Hong Kong account of a major European bank, sources said.
The Securities and Exchange Surveillance Commission has not been able to trace where the money went after reaching Hong Kong.
The sources said the SESC was investigating the motive for transferring the funds overseas, including the possibility that the money may have been misappropriated.
It turns out that several of the companies and organizations that entrusted assets in pension funds to AIJ may lose up to half of what had been set aside to make pension payments.
In the worst-case scenario, some of the corporate pension funds may have to be dissolved because of the loss of the assets. In other cases, some individuals who are members of the corporate pension funds could see part of their pension benefits reduced.
The Financial Services Agency ordered AIJ on Feb. 24 to suspend business operations for one month. The company had collected about 210 billion yen ($2.6 billion) from about 120 corporate pension funds.
However, AIJ officials told investigators with the SESC that the company was now only managing an investment portfolio worth about 20 billion yen, meaning that about 90 percent of the assets deposited by the corporate pension funds are wiped out.
The FSA also instructed AIJ to explain to corporate clients what went wrong. The agency will begin an investigation from Feb. 27 of all 260 or so investment advisory companies to search for possible problems in their pension fund management practices.
Neither the FSA nor the Ministry of Health, Labor and Welfare have disclosed the names of the 120 or so corporate pension funds that placed their assets with AIJ.
According to sources, a number of major companies, such as Yaskawa Electric Corp., a manufacturer of industrial robots, have deposited assets with AIJ, but most of the corporate clients are pension funds organized along regional or business groupings that cover small businesses in such industries as construction and transportation.
One such pension fund for those working at automobile repair companies in the northern Kanto region has about 2,000 members. That fund had entrusted 48 percent of approximately 5 billion yen in total assets to AIJ.
Another pension fund for those working at construction companies in the northern Shinetsu region with about 7,000 members had deposited about 40 percent of its total assets with AIJ.
There were several other pension funds that had deposited about 30 percent of their assets with AIJ.
If those pension funds are unable to recover the lost assets, it could mean there are insufficient assets to make pension payments. To avoid that situation, companies may have to cover the losses in assets, or pension benefits may have to be cut or pension premiums increased.
AIJ officials have not divulged to the SESC how the assets were lost. The assets may have been lost due to bad investment decisions by AIJ or company officials may have diverted the money for their own use. AIJ officials apparently also made false statements to their corporate clients about the gains earned for the pension funds.
Investigators will look into where the assets flowed as well as the extent of the false statements made to determine if criminal charges should be filed against AIJ and its officials.
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