The Japan Securities and Exchange Surveillance Commission has recommended that the Prime Minister and the Commissioner of the Financial Services Agency take administrative action against Kurosai Co., Ltd. after an inspection found that the investment advisory firm did not provide advice faithfully to clients and used materially inaccurate advertising. The main finding was that an adviser bought stocks in his own account before the firm recommended them to customers as next day day trading ideas and sold them after the advice was published, while the firm failed to maintain controls to prevent such conflicts of interest. From 6 June to 7 September, the adviser made 31 trades in 29 recommended stocks, producing about JPY 1 million of profit across 22 trades and about JPY 980,000 of losses across nine. Internal rules required pre approval for personal trading in domestic listed stocks, but no application was filed, the compliance function did not operate the control, and the representative director knew of the trading, failed to require checks or approval, and tried to conceal the conduct. Separately, website advertisements portrayed stock picks as if the firm had advised specific purchase dates and prices and investors had realized stated gains, although the firm had only introduced the names of stocks. The representative director had not established adequate advertising screening or website review processes. The commission said the conduct breached the duty of loyalty under Article 41(1) of the Financial Instruments and Exchange Act and the advertising prohibition in Article 37(2).

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