By Takahiko Hyuga
Nov. 12 (Bloomberg) -- Japan’s financial surveillance agency said it is investigating funds that bet on art and racehorses as regulators broaden their scope to protect individual as well as institutional investors.
The Securities and Exchange Surveillance Commission is probing the activities of nine funds and brokers that sell so- called low-liquidity products to individuals, according to its Web site. It didn’t look at any last fiscal year, SESC data shows.
“We are expanding our coverage to protect individual investors,” Shuichi Sonoda, the director of the inspection division at SESC, said yesterday in an interview. “We will make an effort to check the activities of new targets.”
Sonoda said regulators began to take a wider view of their role after the government started enforcing the Financial Instruments and Exchange Law in September 2007, seeking to bolster protection for investors and unlock the 796 trillion yen ($8.9 trillion) held in cash and bank deposits in Japan.
The SESC began a probe of Epsom Aiba-Kai, a fund that invests in race horses, with an inspection of its offices in Tokyo’s Setagaya district last month. Commission staff are also investigating Art Investment Bank Ltd.
Epsom Aiba-Kai collects money from individuals to invest in racehorses and pays a dividend when the horse wins. Art Investment collects funds from individuals to purchase contemporary art, providing them with a capital gain when it sells the pieces.
‘Vulnerable Position’
Sonoda declined to provide details on the investigations and would not say whether or not they were routine.
An official at Epsom Aiba-Kai, who declined to be identified, said she had no comment. Art Investment President Kazuo Tanaka also declined to comment.
The number of Japanese brokerages inspected by the SESC dropped to 89 in the 12 months through June 30, from 107 five years earlier, according to its annual report. The number of foreign banks that came under scrutiny fell 59 percent to 7 from during the same period.
“Individual investors are in a vulnerable position and could get hurt if the government doesn’t step up scrutiny,” said Takao Saga, a director at Japan Securities Research Institute.
Saga, who also teaches securities regulation at Waseda University in Tokyo, said small funds are proliferating in Japan, presenting individuals with the chance to make or lose money on everything from wine and noodle shops to bikini models.
To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net
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