Q: Who were the key players of AIJ scandal?

AIJ Key Perople


Q: Timeline of the AIJ Scandal

AIJ Timeline


Q: Were there any changes to the security regulation after the AIJ scandal?

There were two major actions taken by the Financial Services Agency (“FSA”).

On September 4, 2012, FSA published its proposal of measures to prevent the recurrence of the AIJ scandal. In summary,

  • Investors or their trust banks should obtain the NAV directly from the fund administrator.
  • Investors should limit investments only into funds audited by external auditors.
  • FSA will increase penalty (e.g., the toughest penalty of prison period will be raised to 5 years, from 3 years)
  • FSA will conduct tougher inspection and supervision

White & Cash published an excellent summary in English. For further information, please read their ClientAlert published in September 2012.

FSA also conducted comprehensive reviews on 263 investment advisory companies in Japan since February 27, 2012. This sweeping operation made several major progresses, including the accusation of another major Ponzi scheme case operated by MRI International in 2013.


Q: What are the violations of the Financial Instruments and Exchange Law by AIJ?

  • Providing potential clients with false reports in the net asset value of “AIM Global Fund” and its sub-funds, conducted by its president, in its sales activities aiming at making Discretionary Management Contracts
  • Providing its clients with false investment performance reports
  • Submitting false business reports to Kanto regional financial bureau
  • Violation of the fiduciary duty of loyalty (e.g., payments based on purported returns to existing investors from funds contributed by new investors)


Q: Why was it a problem for AIJ not to be licensed for “Discretionary Investment Business”? What was the difference between “Discretionary Investment Business” and “Investment Advisory Business” in Japan?

Before the Financial Instruments and Exchange Act was revised in 2006, Japan-based hedge fund managers were regulated the Act for the Regulation, etc. of Securities Investment Advisory Business (Advisory Act). According to this old act, there were two ways to earn fees for investment-related services. The Discretionary Investment Business license was required to manage money for client with a discretionary capacity while the Investment Advisory Business registration was only for providing investment advice to clients (thus, clients will make final decisions).

The hurdle to obtain the Discretionary Investment Business license was very high as it required an applicant to have a JPY 50 million paid-in capital and to be profitable from the first year, as well as to have a permanent office in Japan with several investment professionals with more than 5 years of experiences. For many new hedge funds, it was not easy to be licensed, thus many new managers moved to Hong Kong or Singapore where the regulations were not as stringent.

When AIJ launched the AIM Global Fund in 2002, it was only registered for non-discretionary investment advice and not licensed for discretionary investment management. It was only 2004 for AIJ to be licensed when it merged with Cigna International, a licensed entity.


Q: Who was the independent auditor?

From March 2008 to March 2012, Kazuo Hagiwara audited financial accounts of AIJ’s funds. On April 26, 2013, Hagiwara was accused by FSA for the violation of Public Accountant Act through his involvement with AIJ.

There is no publicly disclosed information about independent auditors prior to Mary 2008.


Q: How much did Japanese pension funds allocate their capital to AIJ?

AIJ Allocation

Source: Ministry of Health


Q: Is there any regulation, which requires administrators to be registered in Japan?



Q: The performance of Madoff and AIJ began weaker toward the end of their operations. Is it a common pattern of hedge fund frauds?

It is true that AIJ reported lower average returns in later years like Madoff, but this is not always the case for hedge fund frauds. For example, Bayou, MRI, Petters, Philadelphia Alt, Weavering and Westgate all reported similar level of stable returns until their schemes collapsed.


Q: Were Venture investments also controlled by AIJ and ITM?

There is no public information about this relationship, but we suspect so.


Q: Was the ownership structure of ITM or AIA disclosed to the public or available to the investors?

No. But, FSA probably knew this relationship.


Q: Where can I find the information about the current status of Japan’s corporate pension funds?

Please read Muzuho Pension Research Institute’s AIJ Scandal and the Future of Occupational Pensions in Japan. http://www.actuaries.org/lyon2013/presentations/PBSS_Ono.pdf


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