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Tuesday, June 6, 2006

Murakami arrested over insider trading

NBS chat with Livedoor pair a mistake: fund guru


Staff writer

Outspoken investment fund manager Yoshiaki Murakami was arrested Monday for alleged insider trading linked to his investment fund's purchase of Nippon Broadcasting System Inc. shares between late 2004 and early 2005.

News photo
Star fund manager Yoshiaki Murakami shows a range of expressions Monday during a news conference at the Tokyo Stock Exchange in which he admitted to insider trading.

The move came after a sudden turn of events in which the 46-year-old bureaucrat-turned-financier held a hastily arranged news conference in the morning to own up to the allegations and apologize.

The Tokyo District Public Prosecutor's Office searched the offices of the so-called Murakami fund in the Roppongi Hills commercial complex in Tokyo and other locations later in the day for evidence his fund violated the Securities and Exchange Law.

"I deeply apologize, as the most well-versed among experts on securities law, for violating the law," Murakami said while bowing at the Tokyo Stock Exchange, which was packed with reporters, photographers and TV crews.

Murakami, operator of MAC Asset Management Pte., now based in Singapore, added that he will step down from his post and retire from the investment business to take responsibility for the incident.

At the same time, however, Murakami stressed that he did not realize at the time that his actions could be construed as insider trading.

"I did not think I was violating the law, but considering what I had done (now), I thought I needed to own up to my charges and do some self-reflection," he said. "I will withdraw from this world" of fund management.

Murakami said he met with Livedoor Co. founder Takafumi Horie and former Livedoor Chief Financial Officer Ryoji Miyauchi on Sept. 15, 2004, at his office and urged them to acquire NBS stock because it was a "good buy" and it "would be better for anyone else who shares his thinking (on NBS) to become a shareholder."

Livedoor, which would go on to make a hostile takeover bid for NBS, was later targeted by an accounting fraud probe that resulted in the arrest of Horie on charges of violating the Securities and Exchange Law.

By Oct. 1, 2004, the Murakami fund had acquired 3.94 million shares, or 12 percent, of NBS, according to reports the fund sent to the Finance Ministry.

When Murakami met the two again on Nov. 8 that year, Miyauchi and Horie both expressed interest in acquiring NBS. "(We) want the NBS shares. (We) want to run the company," Murakami quoted one of them as saying.

At the time, however, Murakami said he didn't think Livedoor had the financial resources to execute a takeover.

Horie and Miyauchi met Murakami the following Jan. 6 to ask him to support a public tender offer Livedoor intended to make for NBS shares, he said.

Murakami said Miyauchi put his hands down on the table, bowed his head and asked for his support.

By that time, the Murakami fund's holdings in NBS had risen from 16 percent on Dec. 31, 2004, to 18.57 percent on Jan. 5, 2005, when it bought another 800,000 shares.

On Feb. 8 that year, Livedoor announced it had obtained 35 percent of NBS, including a 29.63 percent stake it bought in off-hours trading on the TSE.

Murakami said prosecutors told him during voluntary questioning that it was illegal for him to even listen to the Livedoor pair's remarks about their plans to purchase NBS shares.

"At first, I thought that (interpretation of the law) is ridiculous," he told the news conference. "But after considering what is stipulated in the law, my actions may or may not be illegal."

Despite his opinion of what he thought to be a gray-zone allegation, Murakami said he decided to own up to the charges because if he didn't, it would take years to fight the case in court, which would negatively impact his company and his employees.

"It is the first time in my life that I have given up fighting," he said. "I thought I ought to bury the hatchet for now."

Murakami established his fund, M&A Consulting Inc., in 1999 after quitting his job at what was then the Ministry of International Trade and Industry. The amount of funds under its management has surged to more than 400 billion yen from just 4 billion yen.

The Murakami fund manages funds for about 100 corporate clients, mainly in the United States.

A maverick's downfall

Reuters Free-wheeling capitalist out to make a fast buck, or defender of shareholders' rights? Japan's best-known fund manager, Yoshiaki Murakami, has been called both.

Over the past seven years Murakami, 46, has pioneered aggressive Western-style techniques in Japan aimed at squeezing bigger payouts for shareholders from cash-rich companies in a country where investors traditionally have little clout.

On Monday, the former trade bureaucrat was arrested after admitting he had violated laws against insider trading in an investment linked to scandal-hit Internet group Livedoor Co.

His woes are the latest fallout from the Livedoor saga, which has sparked debate over whether a dynamic "New Japan" has been marred by a relentless, immoral pursuit of profits.

"You don't like me probably because I made so much money," Murakami told a packed news conference at which he admitted to wrongdoing but defended his achievements and business style.

Former Livedoor CEO Takafumi Horie, who was tapped by the Liberal Democratic Party last year as an election poster boy for reform before his downfall, was indicted in February for breaking securities laws.

Murakami and Horie symbolized a new breed of entrepreneurs who challenged old-style corporate practices that protected managers and employees -- often, critics said, at the expense of short-term shareholder value.

But they also faced criticism for a philosophy that appeared to put making money ahead of everything.

Born in the city of Osaka, Murakami was said to have begun his career as an investor at age 9 when his father gave him 1 million yen and he bought shares in a brewery.

After studying at the prestigious University of Tokyo, Murakami joined the trade ministry, where he worked for 16 years.

In 1999, he ditched his career as an elite bureaucrat and set up his own investment fund, styling himself as an activist keen to provide value for oft-neglected shareholders.

Murakami jolted Japan's staid business circles in 2000 when he launched a rare hostile takeover bid for real estate group Shoei Co.

Chronology of events related to Murakami fund

Following is a timeline of major events surrounding Yoshiaki Murakami's investment fund:

1999 -- Murakami, a former trade ministry official who specialized in merger and acquisition regulations, sets up M&A Consulting.

2000 -- Murakami launches Japan's first hostile takeover bid, targeting real estate firm Shoei.

2002 -- He launches Japan's first proxy fight, against cash-rich apparel company Tokyo Style.

2003 -- The Murakami fund effectively becomes the second-largest shareholder in Nippon Broadcasting System, a radio station.

2004 -- The fund raises its stake in NBS to become its largest shareholder, holding more than 18 percent.

Jan. 17, 2005 -- Fuji Television Network announces a public tender offer for shares in the radio station in an attempt to turn it into a wholly owned subsidiary. The fund raises its stake in Nippon Broadcasting shortly before the announcement.

Feb. 8 -- Livedoor, an Internet conglomerate, says it has acquired a 35 percent stake in Nippon Broadcasting mainly through off-hours transactions. The Murakami fund is believed to have sold part of its NBS shareholdings to Livedoor.

Feb. 28 -- The fund's stake in Nippon Broadcasting stands at 3.44 percent.

Sept. 28 -- A financial report shows the fund has acquired major stakes in Hanshin Electric Railway and Hanshin Department Store.

April 13, 2006 -- It is learned that Hankyu Holdings is considering purchasing all Hanshin Electric Railway shares held by the fund.

June 3 -- It is learned that prosecutors have questioned Murakami over possible insider trading.

June 5 -- Prosecutors arrest Murakami for alleged insider trading.



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