SBI’s Korean Investments use Spurious Connections with Son

8,700 million yen of appraisal profit in 2 years from a savings bank on the brink of suspending operations using exactly the same MO for realized profit as has been used in Japan.

September 20, 2012

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“I can’t give the real names of the people involved” – this was the beginning of an internal written accusation received at FACTA’s editorial desk soon after we had begun to pursue SBI.

Information that comes to the editorial desk is a mixture of wheat and chaff but this accusation was very thorough and had highly accurate details including even published SBI documents and references to briefing documents for us to check.

For example, the beginning of the written accusation correctly reveals inside details about the supplement company SBI ALApromo (SBI Pharma) that played a large and effective role in the complex window-dressing counterfeit that SBI cooked up in accounts settlements.

It is these transactions involved in capital increase for ALApromo in which the Securities and Exchange Surveillance Commission (the Japanese version of the SEC) is now showing a particular interest and the SESC is strongly suspicious that there has been a violation of the Financial Instruments and Exchange Act (in the form of a deceptive plan). As might be expected, the City news coverage from newspaper and TV companies that cover the SESC also detected these furtive explorations and these companies are trying to find out where the SESC will put the knife into SBI. An SESC executive answered late-night questions from waiting reporters.

“Exactly as portrayed in previous magazine reports.”

The magazine is FACTA. The May issue (SBI, which is being sold off in pieces, has mystery largest shareholder) and the July issue (SBI Creates Mid-Level Holding Companies to Conceal Bad Subsidiaries) articles revealed the trick of giving the failing ALApromo a total market value of 72 billion yen. Nexyz, a company listed on the 1st section of the Tokyo Stock Exchange took on a capital increase that was conducted at over twenty times the past capital increase price of 50,000 yen, and SBI’s investment partnership bought 17% of Hakubi (Kimono) School, a subsidiary of Nexyz. This “barter mechanism” is also included in the written accusation.

Misinterpretation of facts by the Chosun Daily News

FACTA’s coverage, however, is not based on this written accusation. We have analyzed everything independently and have meticulously checked out all the stories. We merely cross-checked the results of our investigations with the written accusation and it was surprising how much they matched. Therefore we do not believe that this is an anonymous defamatory document. We can more or less guess who the author is but we will not reveal the name here. However, this is information that only a person inside SBI, in fact only executive personnel at SBI could be party to. The author spells out their own feelings about why they make these accusations.

“I can’t watch Kitao swindle any more people.”

FACTA will respond to this plea. It was mentioned first in the written accusation but this issue will expose the inside details of SBI’s overseas investments to the light of day.

Korea’s Hyundai Swiss Savings Bank Co., Ltd was established in 1973. The company name contains Hyundai but it is a privately held company which has no relation to the Hyundai Group, a global company that represents Korea. In fact, it is being sued by the Hyundai Group for using the name without authorization.

If we take a look at the website, it looks respectable – reminiscent of a Western investment bank but this is not an investment bank. Neither is it a normal bank. If we described it in Japanese terms, it would be a small financial institution for savings that combines the functions of consumer financing and a Shinkin bank.

Currently, the Hyundai Swiss Savings Banks 1 to 4, which are Hyundai Swiss subsidiaries, are being run by private business operators. The following appeared in an article in Korea’s Chosun Daily News on May 8.

“It is understood that the right of management to Hyundai Swiss Savings Bank which had a near-death experience when it was targeted in the third savings bank structural adjustment review by the financial authorities will be transferred to SBI Finance, an affiliate company of Softbank led by the CEO, Masayoshi Son. (omitted) According to the financial authorities and the savings bank industry, in the first half of this year, SBI Finance invested between 30 and 50 billion Korean won in Hyundai Swiss Savings Bank using the bond capital increase method and is aiming to obtain the right of management to the bank.”

To summarize, in the process of investigating irregularities and conducting structural adjustment in savings banks, the Korean financial authorities suspended the activities of 20 savings banks such as Solomon Savings Bank, Standard Chartered First Bank (formerly Korea First Bank) and Busan Bank. Hyundai Swiss was also investigated but was exempted from reprimand due to the support of the reliable Japanese Softbank –affiliated company.

This article tells of the actual situation in that domestically, Korea, which has produced global companies such as Samsung and Hyundai, cannot globalize but there has been a conclusive misinterpretation of facts.

It is SBI Korea Holdings, in other words, an SBI Holdings subsidiary that has invested in Hyundai Swiss 1 and 2. The reason that it is not surprising that the Korean journalist made a mistake is that the Hyundai Swiss website gives the impression that it is receiving investment from Softbank. This is how creditworthy the name of Masayoshi Son, the Korean hero who lives in Japan, is in Korea.

However, Japanese people know. That Softbank and the SBI Group are two different companies. Yoshitaka Kitao, formerly of Nomura Securities (currently CEO of SBI Holdings) was scouted by Son and became a Softbank board member in 1995. The two experienced a honeymoon period in which Kitao made his old company Nomura accept new corporate bonds on a number of occasions to finance Son who was drowning in debt.

However, the IT bubble burst and they became alienated when Son embarked on his communications business and Kitao resigned as a Softbank board member in 2005, his 11th year in that position, and took up the leadership of the SBI Group independent of Son.

Mystery third party in Beijing

It was nothing like an amicable divorce, in fact, in 2006, Softbank sold all the shares that it held in SBI. Taking advantage of the fact that in Korea Softbank and SBI are still confused, Hyundai Swiss, in spite of being more black than gray under the gaze of the authorities, used spurious connections to Son as a lifeline.

What is even more surprising is that SBI’s March 2011 settlement of accounts shows appraisal profit of 1,400 million yen for Hyundai Swiss but the March 2012 settlement of accounts shows 7,300 million yen.

How can a financial institution that has been untruthful about its connections to Softbank but more than this, that is the target of an investigation by both the financial authorities and prosecutors, produce appraisal profit of 7,300 million yen?

There is some kind of trick. Think back to the MO that used ALApromo. In short, this is the same thing.

Using the fact that Hyundai Swiss shares are not available on the stock market as a cloak of invisibility, he has been selling these shares to a third party for a high price and has been recording extortionate appraisal profit figures that are much higher than those of actual transactions as realized profit…. Sure enough, Kitao is using the same MO overseas as he uses in Japan.

The above-mentioned written accusation suggested the existence of a third party who was made to buy the Hyundai Swiss shares from Kitao. This third party is someone who was running an auctions company in Beijing. We are currently contacting this person with a view to interviewing them but so far, we have had no reply. (titles omitted)