Trader told to continue hiding losses Iguchi pleads guilty to $1.1 billion fraud

October 21, 1995|By BLOOMBERG BUSINESS NEWS

NEW YORK -- Daiwa Bank Ltd. yesterday admitted it told a bond trader to continue concealing $1.1 billion in Treasury losses after he confessed making unauthorized trades to them.

The bank's admission came after the trader, Toshihide Iguchi, 44, pleaded guilty in a U.S. federal court to the huge fraud. The New York trader, who is cooperating with authorities, testified that bank officials told him to keep hiding his losses.

The role that Daiwa officials played in one of the largest bank scandals in history is now under investigation by the U.S. attorney's office in Manhattan. The office declined to comment on possible charges.

Former federal prosecutors speculated that the bank itself could now become a target of investigators because of its admitted role in actions in violation of U.S. banking regulations.

"The bank has serious problems," said Elliot Sagor, a former assistant U.S. attorney in New York and now a partner at the law firm Squadron Ellenoff Plesent & Sheinfeld.

Daiwa, the world's 19th-largest bank, denied that its actions in the matter constituted a "cover-up."

"Because we needed to continue making interest payments and wanted to prevent Iguchi from fleeing, we directed the actions be continued," the bank said in a statement.

Iguchi, who admitted forging 30,000 documents in 11 years to hide his losses, made his confession to his superiors in a %J 35-page letter dated July 17. The scandal came to light last month.

Iguchi said that two other traders in Daiwa's New York office were involved in the cover-up. The other traders haven't been identified.

Iguchi pleaded guilty yesterday to charges of embezzlement, money laundering, falsifying records and conspiracy. He faces a maximum sentence of 30 years in prison on each of the most serious counts and fines of $1 million or more.

The trader, who also admitted to stealing $575,000 from Daiwa and transferring the money to two accounts he controlled, entered his plea more than a decade after he began making unauthorized trades to cover his mounting losses in the U.S. Treasury bond market.

Iguchi charged that Daiwa's New York branch deliberately misled U.S. examiners about the bank's failure to separate its trading and settlement functions.

nTC "Daiwa is continuing its own investigation into these matters," Kenshi Shiraiwa, deputy general manager of the bank's international division, said in the statement.

"We are cooperating with the authorities in their investigations."

Former prosecutors said that may not satisfy the U.S. attorney's office. Had Daiwa officials informed regulators of Iguchi's activities when they learned of the trading fraud, the officials might not have severely penalized the firm.

Now, they likely will try to prosecute the company and its highest-ranking officials, the former prosecutors said.

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