The Securities and Exchange Commission today announced fraud charges against the former controller of a suburban Chicago company’s Japanese subsidiary who cost his company millions of dollars in trading losses and manipulated accounting records to avoid detection.
The SEC alleges that Katsuichi Fusamae, who was a senior accounting officer at Molex Japan Co. Ltd., engaged in unauthorized equity trading in the company’s brokerage accounts that resulted in losses of more than $110 million. He concealed the massive trading losses by taking out unauthorized and undisclosed company loans with Japanese banks and brokerage firms, and he used loan proceeds to replenish account balances and engage in additional trading. When Fusamae’s long-running scheme came to light and the parent company Molex Incorporated restated its financial statements in 2010, it recognized $201.9 million in cumulative net losses, which included both trading losses and borrowing costs from the unauthorized loans.
Fusamae agreed to settle the SEC’s charges by admitting wrongdoing and accepting a permanent bar from serving as an officer or director of a publicly traded company. Possible monetary sanctions will be determined by the court at a later date.
Molex Incorporated, which is based in Lisle, Ill., and designs, manufactures, and sells electronic components, agreed to a cease-and-desist order finding that the company filed inaccurate financial statements as a result of Fusamae’s fraud. Molex also failed to maintain accurate books and records and sufficient internal accounting controls.
“Fusamae took advantage of internal control weaknesses at Molex to falsify records, monopolize the flow of information from banks and broker-dealers, and circumvent external and internal audit processes. His actions left Molex shareholders in the dark about the company’s true financial condition,” said Timothy L. Warren, Associate Director of the SEC’s Chicago Regional Office.
According to the SEC’s complaint filed in U.S. District Court for the Northern District of Illinois, Fusamae’s scheme began in the late 1980s when he began investing Molex Japan’s excess cash in riskier securities, including substantial trading of equities on margin. No one at Molex or Molex Japan authorized Fusamae to engage in the riskier trading, nor were they aware of his trading activities. Shortly after Fusamae started his unauthorized trading, Molex Japan began suffering substantial losses on Fusamae’s investments. Fusamae falsified Molex accounting records and general ledger entries and intentionally utilized dormant general ledger accounts to conceal the unauthorized and undisclosed trading as well as the concealed borrowing. At the peak of his scheme, Molex Japan had accumulated approximately $222 million in unauthorized loan obligations as a result of Fusamae’s misconduct. Molex consequently filed financial statements that failed to account for the trading losses and unauthorized loans.
The SEC’s complaint charges Fusamae with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1. Fusamae also is charged with aiding and abetting Molex’s violations of Section 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. In addition to the officer-or-director bar, the settlement permanently enjoins Fusamae from future violations and provides the court with the authority to determine whether he obtained any ill-gotten gains and whether disgorgement is appropriate. The settlement is subject to court approval.
The SEC’s order against Molex finds that the company violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. Molex neither admits nor denies the findings.
The SEC’s investigation was conducted by Jeffrey A. Shank and Kevin A. Wisniewski in the Chicago Regional Office. The SEC’s litigation related to disgorgement will be led by Daniel J. Hayes.