Securities on Alert

Designation of Securities on Alert

Update : Jul. 01, 2014

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Issue Name JALCO Holdings Inc.
Code 6625
Designation Date Jul. 1, 2014
Reasons for the Designation On May 30, 2014, JALCO Holdings Inc. (hereinafter "the Company") disclosed an investigation report of the third party committee concerning inappropriate accounting processing. The Company then disclosed corrections to earnings reports for the period from the fiscal year ended March 2012 to the third quarter of the fiscal year ended March 2014 on June 12, 2014 and submitted amendment reports, etc. regarding securities reports and quarterly reports for the same period on June 30, 2014.
These reports, etc. revealed that, in the Company's main business of purchasing and selling second-hand Pachinko and Pachislot machines (Japanese-style pinball and slot machines), there were fictitious transactions between one supplier and buyer that were substantially the same entity. Due to this, the Company canceled all sales in such business, which resulted in a 76% reduction in consolidated sales for the fiscal year ended March 2013 and an 80% reduction for the third quarter of the fiscal year ended March 2014.
In this case, the Company group gave priority to business expansion over confirming the soundness and appropriateness of transactions pertaining to such business. Even though some board members including a representative director had information on credit risks, etc. of the client, they did not share such information with other board members and auditors, which resulted in insufficient internal check-and-balance. The Company failed to adequately verify the state of operations at the client to which it entrusted inventory management. There was also no appropriate system for checking such entrustment due to inadequacies in the human resources infrastructure. These were identified as the main factors for this case.
In overall consideration of the above situation, TSE deems that improvements to the Company's internal management systems, etc. to be highly necessary and designates its stock as a Security on Alert.
Furthermore, in light of the fact that inappropriate accounting for sales had continued under the oversight of inadequate internal management systems of the Company and that large-scale corrections were made to sales figures for its main business, TSE deems that this case has undermined the confidence of investors in the TSE market. As such, TSE shall also impose a listing agreement violation penalty on the Company.
Issue Name RISO KYOIKU CO., LTD.
Code 4714
Designation Date Mar. 11, 2014
Reasons for the Designation RISO KYOIKU CO., LTD. (hereinafter "the Company") disclosed, on February 10, 2014, the investigation report of the third party committee that looked into inappropriate accounting processing, and subsequently submitted, on February 14 and 17, amendment reports, etc. to correct securities reports and quarterly reports for the period from the fiscal year ended February 2008 through to the second quarter of the fiscal year ended February 2014.
These disclosures revealed that sales of the Company and its subsidiaries had been inappropriately inflated through various means, such as by including income from lessons that were not conducted. These improprieties were conducted based on instruction or with tacit approval from the representative director and several other directors and led to the Company stating figures for sales and net income which were inflated by a total of JPY 830.8 million and JPY 584.6 million respectively. As a result of the corrections, the profit for each period significantly decreased, including a period running into net losses, and it was found that the Company had fallen into a state of liabilities in excess of assets during the fiscal year ended February 2012.
The background to this case lay in the Company's management policy that placed overemphasis on sales and an employee assessment system based around short-term business performance. These led to the attainment of sales targets being an absolute must for executives and employees, creating a situation where sales had to be falsified by making various inappropriate acts. TSE deems that the persons involved in such actions to be severely lacking in compliance.
In addition, the Company's units with administrative responsibilities did not have a supervising director, were not sufficiently empowered, and suffered from weak check functions. The specifications and design of the Company’s system contained faults that invited the inappropriate processing of sales figures, and, at some of its subsidiaries, other systemic problems were purposely left unaddressed.
Moreover, the statutory auditor did not conduct sufficient audit and did not closely collaborate with the audit firm or the internal audit division, whose organization was also not adequately established.
In overall consideration of the above matters, TSE deems that improvements to the Company's internal management system, etc. to be highly necessary and designates its stock as a Security on Alert.
This was a case where inappropriate accounting processing had continued over an extended period of time, based on instruction or with the tacit approval from the representative director and several other directors, and, as a result of the corrections, the profit for each period had significantly decreased. The Company had also fallen into excess liabilities during a certain period. As such, TSE deems that this case has undermined the confidence of investors in the TSE market and shall also impose a listing agreement violation penalty on the Company.
Issue Name LCA Holdings Corporation
Code 4798
Designation Date Feb. 8, 2014
Reasons for the Designation On December 19, 2013, LCA Holdings Corporation (hereinafter "the Company") received an order from the Director General of the Kanto Finance Bureau to submit amendment reports, etc. to correct false statements made in the Company's securities reports and quarterly reports for the fiscal year ended May 2009 through to the first quarter of the fiscal year ending May 2014 as well as securities registration statements submitted for the same periods. The Company submitted amendment reports, etc. without attaching audit reports, etc. by an independent auditor on December 26, 2013, and subsequently resubmitted such amendment reports, etc. with such audit reports, etc. on February 6, 2014.
The Company had fallen into liabilities in excess of assets of JPY 1.051 billion at the end of the fiscal year ended May 2008 and had been placed in a grace period pertaining to the delisting criteria on liabilities in excess of assets until the end of the fiscal year ended May 2009. In a bid to resolve the situation, the Company issued a total of JPY 2.915 billion in new shares, including in-kind contributions in the form of real estate property, in a third-party allotment with a payment date of May 18, 2009.
However, the appraisals of a portion of such in-kind contributions of real estate property were based on overstated rental income, which led the Company to overstate real estate for investment and net assets in its financial statements. Based on these overstatements, the Company had positive net assets in the fiscal year ended May 2009 and the fiscal year ended May 2011. However, as a result of the amendments, the Company was found to have been in liabilities in excess of assets for the four consecutive fiscal years from the fiscal year ended May 2008 through to the fiscal year ended May 2011.
This case resulted from the inflated valuations of said real estate properties by overstating rental income, which was based on a request made by a representative director of the Company and related employees in the course of negotiations regarding in-kind contributions, so that the Company could come out of liabilities in excess of assets in the second fiscal year. The individuals involved in the improprieties were deemed to be severely lacking in compliance. In addition, the members of the board and statutory auditor had not adequately supervised such individuals and failed to prevent the improprieties, and the statutory auditor subsequently recognized unpaid business entrustment fees related to entrustment agreements, which were concluded to cover up the shortfall in rental income, as off-the-book liabilities. In consideration of such facts, TSE deemed that the Company's internal management system was not sufficiently effective. Furthermore, the fact that the Company remains in a situation where it is unable to provide a proper explanation of causes, etc. of the incident is deemed to be a result of inadequacies in its internal management system related to fulfilling its obligation to explain disclosed content. As such, TSE deems that improvements to the Company's internal management system to be highly necessary and designates its stock as a Security on alert.
Additionally, this was a case where a failure to properly appraise the value of the real estate property in in-kind contributions, despite separate agreements concluded to make up for the rental fees of said real estate properties in the course of negotiations regarding in-kind contributions by the representative director and related employees at the time resulted in the Company being found to have been in liabilities in excess of assets for four consecutive fiscal years. As such, TSE deems that this case has undermined the confidence of investors in the TSE market and shall impose a listing agreement violation penalty on the Company.
Issue Name MATSUYA CO.,LTD.
Code 7452
Designation Date May 15, 2013(Designation date in the former OSE market)
Reasons for the Designation On February 13, 2013, MATSUYA CO., LTD. (hereinafter referred to as "the Company") corrected its earnings reports, etc. of past fiscal years and submitted amendment reports pertaining to its securities reports, etc. Investigation and inquiries revealed that the issue had arisen due to a director instructing subordinates to attain unreasonably high targets, which led to employees recording fictitious transactions and rebates, etc. It was also found that certain members of the management, including the then representative director, concealed these improprieties in the fear that they would be discovered. The issue was caused mainly by a corporate culture that placed excessive emphasis on attaining performance targets, the board of directors and its members not functioning properly, the lack of awareness of compliance among management personnel and employees, and superficial compliance with internal rules regarding purchase rebates, etc., some of which were inadequate. As such, it was deemed that there were inadequacies in the internal management systems and frameworks of the Company.
Following a subsequent examination, the designation of the stock as a security under supervision (examination) was removed. However, the Exchange deemed that the need to improve the internal management systems and frameworks of the Company was high, and designated the stock as a security on alert and took the public announcement measure for a violation of the timely disclosure rules, etc. against the Company. The stock was simultaneously placed under the securities under monitoring classification to alert investors of the fact that it had been designated as a security on alert.
Issue Name Princi-baru Corporation
Code 3587
Designation Date Jun. 20, 2012(Designation date in the former OSE market)
Reasons for the Designation On March 14, 2012 and June 8, 2012, Princi-baru Corporation (hereinafter referred to as "the Company") corrected its earnings reports, etc. of past fiscal years and submitted amendment reports pertaining to its securities reports, etc.
Investigation and inquiries revealed that the issue had arisen due to improper accounting processes at the Company caused mainly by negligence in credit control by Company directors and inadequacies, etc. in the internal management systems and frameworks at the Company and its subsidiary Humming Stage Co., Ltd.
Following a subsequent examination, the designation of the stock as a security under supervision (examination) was removed. However, the Exchange deemed that the need to improve the internal management systems and frameworks of the Company was high, and designated the stock as a security on alert and issued a warning for a violation of the timely disclosure rules, etc. to the Company. The stock was simultaneously placed under the securities under monitoring classification to alert investors of the fact that it had been designated as a security on alert and that a warning had been issued.
In addition, the public announcement measure was taken against the Company on January 15, 2008 (its trade name at the time was IB Daiwa Co. Ltd.).
Date of Decision to Continue Designation Sep. 24, 2013
Reason to Continue Designation On March 14, 2012 and June 8, 2012, Princi-baru Corporation (hereinafter "the Company") corrected its earnings reports, etc. of past fiscal years and submitted amendment reports pertaining to securities reports, etc. Subsequently, Osaka Securities Exchange Co., Ltd. deemed that improvement of the internal management system, etc. of the Company was highly necessary and designated its stock as Securities on Alert on June 20, 2012.
The Company submitted the "Written Confirmation of Internal Management System" as required after one (1) year elapses following designation as Securities on Alert. While the Company has made efforts toward improvement, improvement and application of the rules at the Company and its subsidiary were deemed inadequate. In addition, deficiencies in subsidiary management, etc. that led to the improper accounting processes were not sufficiently addressed, and therefore the internal rules and internal control proved to be insufficiently or inappropriately developed and implemented. Furthermore, it was deemed that internal audit and statutory auditor duties were not being conducted appropriately, and that its systems for timely disclosure and accounting operations were not implemented on an organizational basis but reliant on certain individuals.
Based on the substance, etc. of the written confirmation, it was deemed that the internal management system, etc. of the Company has not sufficiently improved. As such, TSE has decided not to remove the designation as Securities on Alert.

In the case where three (3) years elapse since the date of designation as Securities on Alert (June 20, 2012) and TSE deems that problems continue to exist in its internal management system, etc., the stock of the Company shall be delisted.
Issue Name KEIOZU HOLDINGS COMPANY stock
Code 3731
Designation Date Jan. 18, 2012
Reasons for the Designation KEIOZU HOLDINGS COMPANY (hereinafter "the Company") disclosed on October 4, 2011, that it is scheduled to submit amendments to securities reports, etc. Based on this disclosure, TSE determined that there was substantial reason to deem that the content of such amendments would be material and that there is the likelihood of the stock of the Company falling under the delisting criteria regarding false statements. As such, TSE designated such stock as Securities Under Supervision (Examination) on the same day. Subsequently, on December 22, 2011, the Company submitted amendments to securities reports, etc. for the period from the fiscal year ended October 2006 to the third quarter of the fiscal year ended October 2011.
At the Company, under the instruction of the Representative Director, the standing statutory auditor assumed an executive position, and performed inappropriate fund outflows from around May 2001. In connection with the discovery at the end of the second quarter of the fiscal year ended October 2010 that the large fund outflow amounted to 399 million yen, the Company retrospectively stated this amount as allowance for doubtful accounts. The funds were supposedly used by the Representative Director in his name for activities including long-term stock investments and personal business investments. This series of activities was an extremely inappropriate lack of awareness of the legal obligation to segregate company assets and personal assets. In addition, with regard to the General Managing Director, it was deemed that a simple accounting judgment was made with a lack of knowledge regarding the accounting process and without sufficient awareness of the duties and responsibilities as a director, leading to the situation where the sales performance due to incentives was overstated. Due to such inappropriate fund outflows and overstated sales performance for the fiscal years ended October 2007 and October 2008 the stated operating profits before amendment became operating losses after amendment.
The content of the false statements span a long period and might have been significant to the extent of having a possible effect on its market valuation regarding the operating results of the Company. However, it was not deemed to have the effect to the extent of causing a continued large misjudgment of its business performance trend or business scale. In addition, it was deemed that, with regard to the background to the amendment, the involvement by the management was seen, and with regard to the reasons behind the amendment, the statement of allowance for doubtful accounts pertains to newly revealed loans and a lack of knowledge and awareness regarding the accounting process. As such, in comprehensive consideration of the impact of the false statements, the significance of such impact was not deemed to be material or fall under a delisting. As a result, TSE cancels the designation of the stock of the Company as Securities Under Supervision (Examination).
However, the false statements were deemed to have occurred due to long-term and significant deficiencies in the internal management system and framework such as the inadequacy of directors' supervisory functions and statutory auditors' monitoring functions at the Company, as well as not appropriately improving and operating the accounting organization. Therefore, TSE deems that the improvement of the internal management system, etc. of such listed company is highly necessary, and designates the stock of the Company as Securities on Alert. Furthermore, TSE deems that the Company is in violation of matters to be observed regarding disclosure, and will take the public announcement measure.
Date of Decision to Continue Designation Apr. 30, 2013
Reason to Continue Designation On December 22, 2011, KEIOZU HOLDINGS COMPANY (hereinafter "the Company") submitted amendment reports pertaining to securities reports, etc. for the period from the fiscal year ended October 2006 to the third quarter of the fiscal year ended October 2011. Subsequently, TSE deemed that improvement of the internal management system, etc. of the Company was highly necessary and designated its stock as Securities on Alert on January 18, 2012.
The Company submitted the "Written Confirmation of Internal Management System" as required after one (1) year elapses following designation as Securities on Alert. Based on the substance, etc. of the written confirmation, it was deemed that the internal management system, etc. of the Company has not sufficiently improved. As such, TSE has decided not to remove the designation as Securities on Alert.

In the case where three (3) years elapse since the date of designation as Securities on Alert (January 18, 2012) and TSE deems that problems continue to exist in its internal management system, etc., the stock of the Company shall be delisted.
Date of Decision to Continue Designation May 30, 2014
Reason to Continue Designation On December 22, 2011, KEIOZU HOLDINGS COMPANY (hereinafter "the Company") submitted amendment reports pertaining to securities reports, etc. for the period from the fiscal year ended October 2006 to the third quarter of the fiscal year ended October 2011 due to facts including improper outflow of funds to a former representative director/president and excessive accounting of sales from sales rebates. Subsequently, TSE deemed that improvement of the internal management system, etc. of the Company was highly necessary and designated its stock as Securities on Alert on January 18, 2012.
The Company submitted a "Written Confirmation of Internal Management System" as required after one (1) year elapsed following the designation as Securities on Alert. Based on the contents, etc. of the written confirmation, it was deemed that the internal management system, etc. of the Company has not sufficiently improved, and TSE decided to continue the stock's designation as Securities on Alert on April 30, 2013.
The Company again submitted a "Written Confirmation of Internal Management System" as required after two (2) years elapsed following the designation as Securities on Alert. Based on the contents, etc. of the written confirmation, it was found that, while measures are being enacted toward improvement, (i) some directors involved in the improper activities continue to be employed at the Company's subsidiaries, (ii) the Company has not taken sufficient steps toward the collection of leaked funds from the former representative director who directed the improper activities, and (iii) new loans were made to a company whose shares are substantially wholly-owned by such former representative director. Additionally, it was found that internal rules and internal control systems have not been properly established or enforced, and internal audits have not been properly conducted.
Based on this, because it cannot be confirmed that the internal management system, etc. of the Company has sufficiently improved, TSE has decided to continue the stock's designation as Securities on Alert.

In the case where three (3) years elapse since the date of designation as Securities on Alert (January 18, 2012) and TSE deems that problems continue to exist in its internal management system, etc., the stock of the Company shall be delisted.

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