SBI’s Two Major Linchpins attacked by SEFC Investigation

Cosmetics of SBI Disappers. An Evidence of Outright Lie in Hong Kong Proved. Nemesis Murakami Joined Forces. Now the Saga Turns to its Final Chapter.

November 20, 2012

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A black crow cannot be a white crow, no matter how it tries with cosmetics. The powder all over his face will wear off some day.

On November 8th, SBI Holdings (hereinafter “SBI”) announced its 2Q results, with its consolidated net loss reaching 1.36 billion yen. SBI has been employing every accounting gimmick to avoid earnings loss, so as to protect investible grade BBB of debt rating, but the effort failed in vain.

The announcement was made at the Tokyo Stock Exchange and it implied that the International Financial Reporting Standards (IFRS) that had been implemented in April were to blame for these results. In realty, by changing accounting method to IFRS, SBI avoided an impairment charge of SBI Insurance, but IFRS took toll at the appraisal of Chinese stocks, with no investment exit in the first half, thereby it ended up with a loss.

A question was asked to Yoshitaka Kitao: “A monthly magazine wrote an article that SBI asked for an asset purchase by Yahoo?”

Kitao fretted, and instantly denied: “It is an outright lie!”

The article must have been FACTA’s article in November issue (“SBI Failed to Sell Its Assets”). FACTA would return Kitao’s remark straight back to himself.

Unassailable evidence in Shirokanedai property registry

Whatever happens, Kitao cannot admit that he asked an introduction to Yahoo managers by Masayoshi Son of Softbank, with an aim to ask Yahoo buying most of SBI, which is in financial cliff after 7 years of parting with Son. It is true that Manabu Miyasaka, Yahoo’s new CEO met with Son and Kitao in early September. Yahoo’s PR department admitted the fact.

Even though Kitao made a theatrical declaration in front of the press as FACTA reported in detail in the October issue (“SBI’s Korean Investments use Spurious Connections with Son”), Korea is not the only country that takes advantage of the fact that people still confuse Softbank with SBI in order to survive under the shelter of Son’s influence. Through information from sources, FACTA knows that Kitao was begging Son about transactions related to SBI Pharma (formerly SBI ALApromo), the largest tool in the window-dressing counterfeit that SBI cooked up in accounts settlements as reported by FACTA.

Now, we hereby reveal Kitao’s outright lie, which deceived not only us, but the stock market and investors.

The SBI’s disclosure in Hong Kong Stock Exchange announced un-consolidation of a red-ink subsidiary, which FACTA revealed in April issue. It was a strange transaction that SBI sold 100% subsidiary Homeostyle with 2.3 billion yen, receiving the whole stock of IRI, and return the assets exceeding value of 2.3 billion to the buyer, and SBI was to suffer 900 million yen loss.

This cryptically-engineered disclosure was only done in the Stock Exchange of Hong Kong in English, so as not to well-known in Tokyo. The buyer of Homeo, in the disclosure document, was merely named as “an individual person”. This is a joke. Everyone can guess the buyer was the founder of Internet Research Institute (“IRI”), Hiroshi Fujiwara. The Hong Kong disclosure articulated that the buyer being not a connected party. In answering to FACTA’s inquiry, SBI’s PR department also made clear in a press release that the “Buyer of Homeo was not borrowing money from SBI”.

That is probably trickery

On March 10 last year, the 910 square meter mansion in 2-chome, Hamadayama, Suginami-ward, Tokyo, owned by the buyer Fujiwara, was provisionally registered for a 5,700 million yen mortgage by SBI Incubation but this was cancelled on October 12 of the same year. A seven-story apartment building in 2-chome, Shirokane, Minato-ward was also registered for an approx. 3,600 million yen mortgage by SBI. According to the registry, it was registered on June 29 last year and three companies in the SBI Group owned the rights: Incubation had approx. 1,800 million yen; Investment had approx. 1,100 million yen and Broadband Capital had approx. 700 million yen (these were cancelled on January 30, 2012).

It appears that these transactions were conducted prior to the information disclosure in Hong Kong between Fujiwara personally and the SBI Group who “knew exactly what they were doing”. However, SBI cancelled the moThese transactions, before the disclosure at Hong Kong, must have done with convictions. SBI engineered as an “arms length transaction with a third party buyer”, and disclosed a press release to deceive the Stock Exchange of Hong Kong and investors.

While such gimmicks were scrutinized by us, SBI unexpectedly attracted an international attention. As China moving toward Xi Jinping regime, SBI was revealed to be an accomplice of treasure-accumulation by Chinese leaders. In October 25th, New York Times digital edition reported the assets amassed by family members of China’s premier, Wen Jiabao reached more than 2.7 billion dollars law has a long reach.

The article that begins with “The mother of China’s prime minister was a schoolteacher in northern China” reveals that one investment in the name of prime minister’s mother, Yang Zhiyun (90), had a value of 120 million dollars five years ago. The family wealth mushroomed in no time as the former engineer, Wen Jiabao, climbed the ladder of power.

Yoshiaki Murakami returns?

What caught our attention more than anything was the success of his wife, Zhang Beili, who is called the “Empress” in the Chinese jewelry market and his son, Wen Yunsong (English name: Winston Wen), who ran a cell phone business and investment funds. SBI appears as a related party.

According to the New York Times, when Wen Yunsong established an investment firm called “New Horizon Capital” with partners in 2005 and formed Private Equity (PE) funds, he raised 100 million dollars from investors, including SBI Holdings, a division of the Japanese group SoftBank, and Temasek, the Singapore government investment fund. Wen Yunsong invested the money in biotech, solar, wind and construction equipment makers. Probably on his father's coattails, the firm made large profits and since it began operations, it has given a return of 4.3 times the investment amount to investors, according to SBI Holdings.

The performance record of the New York Times is correct, but the relation with Softbank and SBI is incorrect. If this article is a counter to the arrest of Bo Xilai (former Chongqing Communist Party Chief), who was sacked with 1 trillion yen worth of embezzlement, SBI could be target of anti- Hu Jintao/Wen Jiabao faction. Kitao’s “promising” China business, such as funds with Tshinghua University, Beijing University, and Shanghai Yidien Group, or a joint venture to promote ALA, all may suffer from political upheaval, if any. In the 2Q earnings, SBI lost 1.3 billion yen from New Horizon Fund, 300 million yen from Haitong Securities, and 200 million yen from Renren shares.

That is not all. Something extraordinary has happened to SBI shares in Japan. On October 17, an investment company called K.K.Reno suddenly submitted 5% rule reporting to report that it owns 5.85% of SBI shares (current value: almost 7.5 billion yen) and this shook the stock market.

Reno is owned by Yoshiaki Murakami of former MAC, so-called Murakami Fund, who now lives in Singapore. This company was rumored as a dummy of Murakami, when it appeared as buyer of properties. There are different views on this move, ranging from “Murakami is back to Tokyo stock market”, or “ aiming a control of SBI Securities”, or “ just an investment to sell at the high created by his name”. Murakami is said to “saw a value” in SBI.

SBI Securities loans to its parent company

Without doubt, Murakami must have been behind the scenes of the SBI share price hike in November. In the Nippon Broadcasting System share acquisition affair in 2005, Takafumi Horie, who was then Livedoor CEO, made a surprise attack at the heart of Fuji Television under instructions from Murakami. Kitao appeared as “a white knight” in front of the duo, and Murakami and Horie were arrested with charges on violation in Financial Product Transaction Law. This time around, Reno’s accumulation of SBI seems like a revenge of that past.

As we have shown, this coincides with the start of the Securities and Exchange Surveillance Commission (SESC, Japanese SEC) investigations into SBI Securities on October 23. 5% rule and stock price surge looks like Murakami is showing off his existence in order to say, “Look at me! Here I am!’. Kitao boasts that “he invests our shares”, but Murakami allegedly murmured “I don’t tolerate that Kitao.

According to a source, the investigations by the SESC will last till December at least. SBI stresses that these are just general investigations, but they are far from regular investigations which are usually completed in about two weeks.

There are two major linchpins that the SESC is investigating with considerable concern - (1) whether an offering of limited partnership investing in property loans by Cem Corporation—a SBI subsidiary-was problematic; (2)whether 80 billion yen short-term loan from SBI Securities to SBI Holdings regularly took place in the past several years was collateralized by proper value of “SBI subsidiaries’ stocks”. A total of almost 80 billion yen short-term loans has been provided by SBI Securities to its parent company, SBI, almost every year for the last few years have the requisite value.

In the latter transaction, cash equivalent of roughly half of net assets of SBI Securities have been lent to the parent company of 130 billion yen market capitalization, and SEFC is supposedly anxious if there is any frame-up or book cooking in the value of collateralized stocks.

In December, SBI Medium-term notes, lifeline money from retail investors will be due, and offering is expected. Can SBI raise the money? Our terminal battle is now entering to the finale chapter. (Titles omitted)