Japan's Insider-Trading Carousel

Financial scandals in Japan have a rinse-and-repeat quality. Investigators raid companies. Disgraced executives bow apologetically before the cam-eras and head off into early retirement. Then the cycle starts anew. The latest crackdown on insider trading has led to the departure of the chief executive of Nomura Holdings, the country’s biggest brokerage, along with one of his top lieutenants. An ongoing probe has also unearthed evidence of leaks at two other securities firms. “Japan has been letting the animals run wild for two or three years now,” says Takao Saga, a finance professor at Tokyo’s Waseda University.

Financial scandals aren’t exactly unheard of in the U.S. The difference is that in the states convicted tipsters often do serious jail time. Former Goldman Sachs director Rajat Gupta could spend up to 20 years in prison after a New York jury convicted him of passing on privileged information to hedge-fund manager Raj Rajaratnam. In Japan, regulators can only impose modest monetary penalties on investors who profit from leaked information. In June the Financial Services Agency (FSA) fined Sumitomo Mitsui Trust Holdings 130,000 yen ($1,630) after a former unit traded shares for clients ahead of two public offerings.