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Unison tightens controls after insider trading scandal

The Tokyo-based firm has implemented widespread reform - and had senior management take pay cuts - after an independent committee confirmed a former partner had engaged in insider trading for seven years.

Japanese buyout firm Unison Capital has implemented new measures including a ban on Japanese equities trading and revised information security policies to strengthen its internal control systems after a former partner was confirmed to have dealt in insider trading for a period of seven years.

Unison fired the partner in question, named by an LP as Kenichi Kiso, on 27 October when the Japanese Securities and Exchange Surveillance Commission (SESC) entered its offices to investigate an alleged charge of insider trading. Kiso died the next day in undisclosed circumstances.

Though the SESC investigation was subsequently dropped due to Kiso’s death, an external third-party investigation committee appointed by Unison itself concluded in December that Kiso had traded securities listed on the firm’s restricted securities list from July 2002, when he joined the firm, up to the time the SESC investigation began.

While the committee concluded that Kiso had acted completely alone, it noted that his illegal activities had been facilitated by the “excessive mutual trust and insufficient restraints upon an employee’s professional freedom” at the firm.

The firm disclosed last week that it had established an internal controls committee on 28 December 2009. The committee comprises two unnamed Unison partners as well as several of the firm’s directors and employees, according to a statement.  

The statement also noted that measures already put in place since the results of the third party investigation include the complete prohibition of the trading of Japanese equities securities by its employees and directors, and the monitoring of other financial products held by its staff. 

The pay cuts are the classic Japanese style of apology.

Unison has also set up a new compliance committee and is considering commissioning audit firms to support operational audits. It intends to have audits conducted on information security as well. Additionally, the firm will formulate new information security policies and will up the frequency of compliance training sessions to once every quarter from once a year.

“Going forward, Unison will endeavor to recover your confidence and will aim to prevent inappropriate or illegal behavior by having all of its directors and employees work together to maintain a high level of awareness of compliance,” the firm said in last week’s statement.

In addition to the internal reforms, the firm’s partners have all taken significant pay cuts for a period of one year. Lead partner John Ehara has taken a 40 percent salary cut, while the four remaining partners, Tatsuya Hayashi, Tatsuo Kawasaki, Osamu Yamamoto and Kiyoto Matsuda, have all taken a 30 percent pay reduction.

“In light of the findings of the report by the third party committee, we felt that this was necessary to underscore management accountability,” the firm stated in an email to PEI Asia.

“The pay cuts are the classic Japanese style of apology,” a local GP explained. “They want to show regret and responsibility in the most symbolic way.”

Unison's ¥140 billion third private equity fund is one of the largest Asian private equity funds closed last year, despite being ¥60 billion short of its original target at the time of its closing in August 2009.

An in-depth report on the Unison insider trading scandal will appear in the News Analysis section of the March edition of PEI Asia magazine.