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UPDATE 3-Wal-Mart unit involved in Japan insider trade probe

Published 11/05/2010, 02:28 AM

* Regulators examining process of making Seiyu fully owned

* Probe comes amid rising focus on insider trading in Japan (Adds background, confirmation of investigation)

By James Topham

TOKYO, Nov 5 (Reuters) - Wal-Mart Stores, the world's biggest retailer, said it was cooperating with an investigation into possible insider trading related to its takeover of Japanese retail chain Seiyu Ltd.

News of the probe into trading around the Wal-Mart deal for Seiyu adds to a growing focus on the problem of insider trading in Japan, following news last week that regulators were investigating suspicious short-selling ahead of share offerings.

Japan's Securities and Exchange Surveillance Commission (SESC) is looking into stock transactions conducted when Wal-Mart turned Seiyu into a fully owned unit in 2007, a source confirmed to Reuters after Japanese media reported the investigation earlier in the day.

"We have fully cooperated with the authorities for their investigation and will continue to do so," said Kumie Wama, a Tokyo-based spokeswoman for Wal-Mart. She declined to comment on details of the investigation.

The securities watchdog has specifically been looking into stock transactions conducted through accounts held by family members of Seiyu personnel before the tender offer was announced on Oct. 22, 2007.

The tender offer was proposed to Seiyu's board, which discussed its pros and cons at a meeting on Oct. 4, 2007. The SESC suspects the trading took place after that meeting and before the official announcement.

After the announcement, the price of Seiyu's stock, which was delisted in April 2008, jumped as high as 139 yen from 88 yen, and the SESC estimates the trading generated up to 10 million yen ($123,800) in profits, the Nikkei said.

The investigation comes as the securities industry regulator is interviewing brokerages after heavy short-selling was spotted ahead of share issues, a source told Reuters last week.

Over the past few years Japan has been cracking down on insider trading by bolstering the number of investigators looking into suspected cases, Tokyo Stock Exchange spokesman Kazuhiko Yoshimatsu told Reuters.

Although still far short of the several thousand officials who pore over share transactions in the United States, Japan last year raised the number of investigators by 10 to 384 people, almost four times more than a decade ago. The number of prosecutions and fines as a result has risen, said Yoshimatsu.

Last year the Tokyo exchange alerted the SESC to 178 suspected cases of illegal share activity. Of those, including several reported by smaller bourses, the government agency acted on 38 files compared with only 10 acted on five years ago. The actions included seven prosecutions for insider trading. ($1=80.80 Yen) (Reporting by James Topham, Noriyuki Hirata and Tim Kelly in TOKYO and Shravya Jain in BANGALORE; Editing by Nathan Layne and Michael Watson)

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