UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 40375 / August 27, 1998 Accounting and Auditing Enforcement Release No. 1069 / August 27, 1998 Administrative Proceeding File No. 3-9687 ____________________________________ : In the Matter of : : ORDER INSTITUTING PROCEEDINGS THE NIKKO SECURITIES CO. : PURSUANT TO SECTIONS 15(b)(4), INTERNATIONAL, INC., : 15(b)(6), AND 21C OF THE MASAO EBINA, TADAO OSADA, : SECURITIES EXCHANGE ACT OF 1934, and TOSHIYUKI SAGIUCHI : MAKING FINDINGS, IMPOSING : REMEDIAL SANCTIONS AND CEASE-AND- : DESIST ORDER Respondents. : ____________________________________: I. The Commission deems it appropriate and in the public interest that proceedings be, and hereby are, instituted pursuant to Sections 15(b)(4), 15(b)(6) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine (i) whether The Nikko Securities Co. International, Inc. ("Nikko New York") willfully violated or caused violations of Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder, and whether Nikko New York failed reasonably to supervise with a view to preventing violations of Sections 10(b), 17(a) and 17(e) of the Exchange Act and Rules 10b-5, 17a-3 and 17a-5 thereunder; (ii) whether Masao Ebina ("Ebina") willfully violated, aided, abetted, counseled, commanded, induced or procured, or caused Nikko New York to violate Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; (iii) whether Tadao Osada ("Osada") willfully violated, aided, abetted, counseled, commanded, induced or procured, or caused Nikko New York to violate Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; (iv) whether Toshiyuki Sagiuchi ("Sagiuchi") willfully violated, aided, abetted, counseled, commanded, induced or procured, or caused Nikko New York to violate Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder and whether he failed reasonably to supervise with a view to preventing violations of Sections 10(b), 17(a) and 17(e) of the Exchange Act and Rules 10b-5, 17a-3 and 17a-5 thereunder; and (v) seeking to determine the appropriateness of sanctions against Nikko New York pursuant to Sections 15(b)(4) and 21B of the Exchange Act, and against Ebina, Osada and Sagiuchi pursuant to Sections 15(b)(6) and 21B of the Exchange Act. II. In anticipation of the institution of these administrative proceedings, Nikko New York, Ebina, Osada and Sagiuchi have submitted Offers of Settlement that the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and prior to hearing and without admitting or denying the findings set forth herein, Nikko New York, Ebina, Osada and Sagiuchi each consent to the entry of this Order Instituting Proceedings Pursuant to Sections 15(b)(4), 15(b)(6) and 21C of the Securities Exchange Act of 1934, Making Findings, Imposing Remedial Sanctions and Cease-and-Desist Order ("Order"). The Commission has determined that it is appropriate and in the public interest to accept the Offers of Settlement from Nikko New York, Ebina, Osada and Sagiuchi, and accordingly is issuing this Order.[1] III. FACTS Based on the foregoing, the Commission finds that:[2] A.Respondents The Nikko Securities Co. International, Inc. is a broker-dealer registered with the Commission pursuant to Section 15 of the Exchange Act and is an indirect wholly-owned subsidiary of The Nikko Securities Co., Ltd. ("Nikko Japan"). Nikko New York is headquartered in New York City. Masao Ebina was Chairman and Chief Executive Officer of Nikko New York during the relevant time. Ebina has worked for various companies affiliated with Nikko Japan since 1966. Tadao Osada was President of Nikko New York until March 1995 and reported to Ebina. Osada has worked for various companies affiliated with Nikko Japan since 1969. Toshiyuki Sagiuchi was a Nikko New York Senior Vice President and General Manager of the Fixed Income Division during the relevant period. Sagiuchi has worked for various companies affiliated with Nikko Japan since 1983. B.Summary From August 1994 through spring 1995, Nikko New York and certain of its employees violated the books and records and periodic broker-dealer financial reporting provisions of the federal securities laws in connection with a portfolio of mortgage-backed securities (the "MBS portfolio") and failed adequately to supervise its employees. From August 1994 through October 1994, Nikko New York, by improperly using an internal interest rate forecast, rather than the market's interest rate forecast, overstated the fair value of its MBS portfolio in its books and records and in FOCUS reports filed with the New York Stock Exchange. In November 1994, Nikko New York sold the majority of the MBS portfolio to its London-based affiliate, Nikko Europe Plc ("Nikko Europe") for $134 million, at least $17 million above fair value. Nikko New York then improperly booked the entire transaction as trading proceeds and failed to report the $17 million loss that would have been recognized had the securities purchased by Nikko Europe been properly valued. Several months later, in February 1995, Nikko New York, acting as broker for Nikko Europe, sold a portion of the MBS portfolio. In connection with that sale, two Nikko New York employees violated the antifraud provisions by misappropriating approximately $842,000 from Nikko Europe. The employees arranged to sell the MBS portfolio securities in four swap transactions with a third party, in which the prices were deliberately marked down to allow Nikko New York to profit at the expense of Nikko Europe. In order to conceal the scheme, the employees falsified books and records to hide the illicit profits. As a result of these activities, Nikko New York's books and records and FOCUS reports were inaccurate. Throughout the period of these violations, Nikko New York was subject to a May 19, 1993 Commission administrative and cease- and-desist order for violating the same provisions and was working with a consultant on a report to be delivered to the Commission with respect to its compliance with the Commission's outstanding order. [3] C.Nikko New York Mismarks Its MBS Portfolio and Transfers Securities to the Affiliate at Inflated Prices During the summer of 1994, MBS market prices declined following an increase in long-term interest rates and a drop in demand for MBS derivative securities like those held in the Nikko New York portfolio. Consequently, the fair value[4] of Nikko New York's MBS portfolio[5] declined. According to the analysis of Nikko New York's risk manager, who was responsible for reviewing the pricing of the MBS inventory positions,[6] Nikko New York carried the MBS portfolio at values exceeding fair value by $9.6 million at the end of August 1994 and by $17.5 million by the end of October 1994. Despite the decline in the fair value of its MBS portfolio, Nikko New York did not mark its position down. Instead, Nikko New York disregarded the analysis of its risk manager and relied on a higher valuation provided by Nikko New York's MBS trader. The primary variable in the value of the MBS portfolio was projected interest rates, which affected the rate of prepayments on the underlying mortgages. While Nikko New York's risk manager's analysis incorporated the market's view of future interest rates, the trader's valuation relied on Nikko New York's view of interest rates, which was contrary to the views of the rest of the market. In October 1994, Nikko New York discontinued proprietary trading in the MBS market and terminated twenty-six of the MBS trading and sales personnel. Only one salesman, a Nikko New York first vice president (the "Salesman"), was retained to sell off the remainder of the MBS portfolio and to trade MBS pass-through securities. Nikko New York tried to sell the MBS portfolio, but was unable to sell it at Nikko New York's carrying amount, which was approximately $15-20 million above fair value. From at least August through early November 1994, Nikko New York carried the portfolio in its books and records at inflated values and reported these inflated values in its monthly FOCUS reports, filed with the New York Stock Exchange. Nikko New York management, including Ebina, Osada, and Sagiuchi knew that Nikko New York was carrying the portfolio at this higher value, which was based on Nikko New York's internal interest rate forecasts, and received regular, written reports throughout this period quantifying the discrepancy between Nikko New York's carrying values for the MBS portfolio and the value assessed by the firm's risk manager.[7] At an October 13, 1994 meeting, the co-Chief Financial Officer told Nikko New York's risk committee, including Ebina, Osada and Sagiuchi, that since the retail sales force had been terminated, management should consider increasing the reserve from $5 million to $10-15 million "to reach broker bid levels," if the portfolio was still owned by Nikko New York at the end of October. Although Nikko New York held the position at the end of October 1994, the reserve was not increased. 1.The Sale of the MBS Portfolio to the Affiliate Nikko New York was unable to sell Nikko New York's MBS portfolio at prices sought by Nikko New York, which were close to the inflated values at which the portfolio was carried on Nikko New York's books. Consequently, senior Nikko New York management, including Ebina and Osada, decided to sell the majority of the MBS portfolio to Nikko Europe, a sister company headquartered in London. The sale to Nikko Europe, which occurred on November 23, 1994, was an attempt by Nikko Europe to come to the aid of Nikko New York. Nikko Europe paid $134 million for its portion of the portfolio, a $17 million premium to market value. The management of Nikko New York, including Ebina, Osada and Sagiuchi, as well as the management of Nikko Europe, knew that the sale price was higher than Nikko New York could have realized in a sale to the market at that time. In short, through an above-market purchase of the majority of the MBS portfolio, Nikko Europe eliminated the $17 million trading loss that Nikko New York should have recognized and effectively provided Nikko New York with $17 million paid-in capital. Nikko New York's internal books and records and its monthly FOCUS Reports nonetheless recorded the proceeds from the transaction as if there were only a $3 million loss, thus improperly presenting the income statement for November 1994, and retained earnings and additional paid-in capital for all succeeding months. D.The Salesman and the Salesman's Supervisor Misappropriate $842,851 From Nikko Europe on the Subsequent Sale of the MBS Portfolio 1.The Swap Transactions In January 1995, when the MBS market began to improve, Nikko Europe placed an order with Nikko New York to sell on an agency basis the first block of the MBS portfolio securities at a break- even price "or higher." The Salesman's Supervisor and the Salesman, who were both supervised by Sagiuchi, devised a plan to generate profits for Nikko New York and for their trading operation, and to hide the profits from the firm's customer, Nikko Europe. The Salesman's Supervisor and the Salesman sold the securities well below the market price to an unaffiliated broker (the "Unaffiliated Broker"). The Unaffiliated Broker simultaneously sold to Nikko New York's proprietary account certain pass-through securities at prices that had been adjusted down to correspond to the profits hidden by the Salesman's Supervisor and the Salesman from the customer, Nikko Europe. The Salesman's Supervisor and the Salesman then immediately sold the pass-through securities to the market and generated substantial profits, which were hidden from Nikko Europe. The Salesman engaged in four swap transactions with the Unaffiliated Broker pursuant to the plan: three in February 1995 and one in April 1995. In these four transactions, the Salesman and the Salesman's Supervisor misappropriated a total of $842,851 from Nikko Europe, without its knowledge or consent. In addition, the linkage of the sale of the MBS portfolio securities and the purchase of the pass-through securities was never recorded as terms and conditions of the transactions as it should have been in Nikko New York's books and records. The fraudulent swap scheme was uncovered through the efforts of a new risk manager who was hired by Nikko New York in April 1995 after a four-month vacancy in the position. Nikko Europe was informed of the swap scheme in May 1995. Nikko New York did not, however, return the diverted profits to Nikko Europe. Thus, these funds, like the proceeds from the initial above-fair-value transfer from Nikko New York to Nikko Europe, were in substance an additional capital infusion from Nikko Europe and should have been recorded as such in Nikko New York's books and records and reflected in its FOCUS reports. 2.The Salesman, With the Knowledge and Approval of the Salesman's Supervisor, Intentionally Conceals Profits by Mismarking GNMA Positions in Nikko New York's Proprietary Accounts To hide the large profits made on the swap transactions on his daily profit and loss, the Salesman, with the knowledge and approval of the Salesman's Supervisor, mismarked the prices on certain GNMA securities owned by Nikko New York and "bled in" the profits over the course of several weeks. Between February 22 and February 24, 1995, the Salesman artificially marked down certain GNMA II 6 «'s to offset the profits on the swap transactions. As a result of these actions, Nikko New York's February 1995 FOCUS report included the incorrect valuations and understated the firm's profits for that month by approximately $264,000. Total net income reported for February 1995 was $645,169. Thus, the incorrect valuations of the GNMA positions caused Nikko New York's February net income to be understated by approximately 41%. The mismarking of the GNMA positions was discovered the following day by the member of the accounting staff who was charged with reviewing the Salesman's marks, and it was reported to the co-Chief Financial Officer, who agreed to the bleeding in of profits over a few days and took no action to insure that the month-end results were properly recorded. IV. OPINION A.Broker-Dealer Books and Records Violations -- Section 17(a) of the Exchange Act and Rule 17a-3 Thereunder Section 17(a) of the Exchange Act requires brokerage firms to create and maintain books and records. Rule 17a-3 requires broker-dealers to maintain the following records: (1) ledgers or other internal records "reflecting all assets and liabilities, income and expense and capital accounts" (Rule 17a-3(a)(2)); (2) memoranda of brokerage orders, and of any other instructions, for the purchase or sale of securities showing the terms and conditions of the order or instructions and of any modification or cancellation thereof (Rule 17a-3(a)(6)); (3) memoranda of purchases and sales for the firm's account reflecting terms and conditions of the transactions (Rule 17a-3(a)(7)); and (4) records of the computation of aggregate indebtedness and net capital pursuant to Rule 15c3-1 (Rule 17a-3(a)(11)). Information contained in a required record must be accurate. See Report Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding the Distribution of Certain Debt Securities Issued by Government Sponsored Enterprises, Exchange Act Rel. No. 30255 (Jan. 16, 1992). See also Sinclair v. SEC, 444 F.2d 399, 401 (2d Cir. 1971); In the Matter of James F. Novak, Exchange Act Rel. No. 19660, 47 SEC 892 (1983). Brokerage firms are required to value their proprietary accounts at market value. Relevant accounting literature states that if quoted market prices are not available or are unreliable, then the securities must be "valued at fair value as determined in good faith by management." Nikko New York did not act properly to determine the fair value of the MBS portfolio securities. Dealer or broker quotes were available for all the MBS portfolio securities during the relevant time. In fact, there were contemporaneous market transactions in certain of the securities at prices materially lower than Nikko New York's carrying amounts. Nikko New York chose to reject its own risk manager's assessment of the correct value of the portfolio, and to reject the request of the co-Chief Financial Officer to establish additional reserves. Instead, Nikko New York adopted the valuation of its trader, who relied on Nikko New York's view of interest rates, which Nikko New York recognized as contrary to the views of the rest of the market. Accordingly, Nikko New York carried the MBS portfolio in the fall of 1994 at values that significantly exceeded fair value. As described above, Nikko New York willfully violated Section 17(a) and Rule 17a-3 by maintaining inaccurate books and records in the following instances: (i) from August through October 1994, Nikko New York's books and records did not reflect the fair value of the MBS portfolio and overstated Nikko New York's net capital; (ii) Nikko New York failed to recognize the true loss from the November 1994 sale to Nikko Europe and the funds generated by the February and April 1995 swap transactions were inaccurately booked by Nikko New York as trading profits, instead of paid-in capital; (iii) the linkage of Nikko Europe's MBS sales to the Unaffiliated Broker, and Nikko New York's simultaneous purchases of pass-through securities from the Unaffiliated Broker, were terms and conditions of the sales and purchases, which were required to be, but were not, reflected in the memoranda of the orders; and (iv) the alteration in the valuation of the GNMA securities and the "bleeding" in of the profits from the swaps resulted in inaccurate accounting ledgers and profit and loss statements for February and March 1995. Ebina, Osada, and Sagiuchi each received the risk manager's reports and were aware that Nikko New York's valuation of the MBS portfolio exceeded the risk manager's calculation of fair value, as well as what could be achieved in a market sale. In addition, at the October 1994 risk committee meeting, the co-Chief Financial Officer stated that management should consider increasing the reserve. Accordingly, Osada, Ebina, and Sagiuchi knew that the firm's books and records relating to its MBS portfolio were inaccurate, but failed to take steps to correct them, despite having responsibility for those books and records. Consequently, they willfully aided and abetted and caused Nikko New York's violations with respect to the MBS portfolio. B.False FOCUS Reports -- Sections 17(a) and 17(e) of the Exchange Act and Rule 17a-5 Sections 17(a) and 17(e) of the Exchange Act require broker- dealers to file certain financial reports. Section 17(e) and Rule 17a-5 require broker-dealers to file annual reports with the Commission, containing, among other things, a statement of financial condition, a statement of income, and a statement of changes in financial position. Rule 17a-5(a) thereunder requires brokers and dealers to file monthly and quarterly unaudited financial reports, known as FOCUS reports, with the Commission or an SRO. Information contained in those reports must be accurate. See In the Matter of D.S. Meyers & Co., Exchange Act Rel. No. 22417, 1985 SEC LEXIS (Sept. 17, 1985) (filing of inaccurate FOCUS reports constitutes a willful violation of Rule 17a-5); see also In the Matter of Anthony Stoisich, Anthony DeStefano, Exchange Act Rel. No. 27626, 1990 SEC LEXIS 142 (Jan. 16, 1990) (filing false FOCUS reports with the NASD violates Section 17(a) of the Exchange Act and Rule 17a-5). The FOCUS report "constitutes the basic financial and operational report required of those brokers or dealers subject to any minimum net capital requirement . . . ." Form X-17A-5, Part II (General Instructions). Nikko New York willfully violated Sections 17(a) and 17(e) of the Exchange Act and Rule 17a-5 thereunder by filing FOCUS reports and an annual report for March 31, 1995 containing inaccurate net capital computations and financial statements regarding the valuation of the MBS portfolio from August to October 1994. The FOCUS reports also misstated the nature of the proceeds from the initial transfer of the MBS portfolio to Nikko Europe from November 1994 forward, the nature of the proceeds from the subsequent swap transactions from February 1995 forward, and an incorrect income statement reflecting the alterations by the Salesman to disguise the profits taken on the sale of pass- through securities for February and March 1995. The misstatements made in Nikko New York's FOCUS reports caused Nikko New York's retained earnings and additional paid-in capital to be misstated from November 1994 forward, and caused Nikko New York's February 1995 net income to be understated by approximately $264,000 (41%) and its March 1995 net loss to be overstated by $264,000 (71%). As noted above, Osada, Ebina and Sagiuchi knew that the MBS portfolio positions were mismarked. Sagiuchi was in charge of the division that overvalued the securities, and Ebina and Osada were obligated to ensure that the FOCUS reports were accurate. Ebina signed the FOCUS reports. As such, Ebina, Osada and Sagiuchi each willfully aided and abetted and caused Nikko New York's violations of Sections 17(a) and 17(e) of the Exchange Act and Rule 17a-5 thereunder with respect to the mismarking of the MBS portfolio and the subsequent sale to Nikko Europe. C.Failure to Supervise Sections 15(b)(4)(E) and 15(b)(6) of the Exchange Act provide for administrative proceedings for any broker-dealer or associated person who "has failed reasonably to supervise" another person who has violated the Exchange Act or applicable rules and regulations. The statute specifically states that persons or entities cannot be deemed to have failed reasonably to supervise another if: (1) there existed adequate procedures which reasonably could be expected to prevent and detect the violation; and (2) the supervisor or firm reasonably discharged the duties and obligations imposed upon them by such procedures. The violations described above resulted from Nikko New York's failure reasonably to supervise its employees' activities. Nikko New York's procedures were inadequate to prevent the mispricings in the fall of 1994. Although Nikko New York had a risk manager who analyzed and disseminated monthly reports relating to the value of the MBS portfolio, there were inadequate procedures to ensure that this valuation, or any other valuation reasonably designed to determine fair value was used. Nikko New York's procedures were also inadequate to detect and prevent the violations in connection with the swap transactions. In light of the size and significance of the transactions, Nikko New York should have had heightened procedures to ensure that the transactions complied with the securities laws. The need for such procedures was underscored by the absence of the risk manager during the relevant period. Thus, Nikko New York failed reasonably to supervise its employees during the fall 1994 mispricing and the swap transactions in February and April 1995. Sagiuchi failed reasonably to supervise his department in connection with the 1995 swap transactions. As the head of the division, he should have ensured that there were adequate safeguards to prevent the conduct of the Salesman and the Salesman's Supervisor. Sagiuchi also knew that there was no risk manager monitoring the fixed income area, and that the Salesman set his own marks on inventory positions. Nikko New York's trading blotter, which Sagiuchi reviewed, contemporaneously showed the unusually large profits from the sale of the pass- through securities received in the swap with the Unaffiliated Broker. Sagiuchi made no follow-up inquiry on the transactions. Thus, Sagiuchi failed reasonably to supervise in connection with the 1995 swap transactions. **FOOTNOTES** [1]:In a separate civil action filed simultaneously with this proceeding, Nikko New York consented to the entry of an order by the court pursuant to Section 21(e) of the Exchange Act ordering Nikko New York to comply with the Commission's prior cease-and- desist order and ordering the firm to pay a $2.5 million civil penalty. SEC v. The Nikko Securities Co. International Inc., 98 Civ. 2058 (D.D.C. 1998). [2]:The findings herein are made pursuant to the Offers of Settlement made by Nikko New York, Ebina, Osada and Sagiuchi and are not binding on any other person or entity in this or any other proceeding. [3]:On May 19, 1993, the Commission issued an Order finding that Nikko New York failed reasonably to supervise a foreign exchange trader and violated the books and records and broker-dealer reporting provisions of the Exchange Act, in connection with the firm's $18 million foreign exchange trading loss in 1991. Nikko New York was censured and ordered to cease and desist from violating Sections 17(a) and 17 (e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder, and ordered to comply with certain undertakings. In the Matter of the Nikko Securities Co. International, Inc., et. al., Admin. Proc. File No. 3-8048 (Release No. 34-32331). Nikko was also ordered to pay a $1 million civil penalty in a related action. SEC v. The Nikko Securities Co. International, Inc., 93 Civ. 1088 (JFK) (S.D.N.Y. 1993). [4]:Broker-dealers must maintain financial statements consistent with Generally Accepted Accounting Principles, which require that inventory securities be valued at "fair value." AICPA Audit and Accounting Guide for Brokers and Dealers in Securities, Ch. 7,  7.02. "Quoted market prices, if available, are the best evidence of the fair value of a financial instrument." Id., Ch. 7,  7.04. For securities not having a readily available market price, a firm must determine fair value in "good faith." Id., Ch. 7,  7.10. [5]:Nikko New York's MBS portfolio consisted primarily of principal-only strips and inverse interest-only strips issued by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. [6]:Nikko New York's risk manager prepared monthly reports assessing the fair value of the MBS portfolio, which were distributed to Nikko's upper management. Notably, the risk manager was hired in response to a May 1992 New York Stock Exchange Report on Examination finding that Nikko was not in compliance with the NYSE's rule on supervision. In response to the NYSE's report, Nikko New York promised to hire a person to review the prices of the MBS/CMO inventory and to verify those valuations from independent sources. [7]:The risk manager's reports documented that Nikko New York's carrying value exceeded fair value by $9.6 million at the end of August and September 1994, by $17.5 million by the end of October 1994, and by $21 million by November 18, 1994. V. FINDINGS Based on the above, the Commission finds that: A.Nikko New York (i) willfully violated Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; and (ii) failed reasonably to supervise with a view to preventing violations of Sections 10(b), 17(a) and 17(e) of the Exchange Act and Rules 10b-5, 17a-3 and 17a-5 thereunder; B.Ebina willfully aided, abetted and caused Nikko New York's violations of Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; C.Osada willfully aided, abetted and caused Nikko New York's violations of Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; and D.Sagiuchi (i) willfully aided, abetted and caused Nikko New York's violations of Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; and (ii) failed reasonably to supervise with a view to preventing violations of Sections 10(b), 17(a) and 17(e) of the Exchange Act and Rules 10b-5, 17a-3 and 17a-5 thereunder. VI. ORDER Accordingly, IT IS HEREBY ORDERED that, A.Nikko New York: 1) be, and hereby is, censured; 2) cease and desist from committing or causing any violation and any future violation of Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; and 3) appoint two additional directors to its Board of Directors who, prior to their appointment, shall be unaffiliated with Nikko New York or any of its affiliates, and who shall also constitute an Audit Committee. B.Ebina: 1) be, and hereby is, suspended from association with any broker or dealer for a period of six months, effective on the second Monday following entry of this Order; 2) cease and desist from committing or causing any violation and any future violation of Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; and 3) pay a civil money penalty of $50,000 within ten (10) days of the entry of the Order, by U.S. Postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312, under cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Gregory S. Bruch, Assistant Director, U.S. Securities and Exchange Commission, Division of Enforcement, 450 Fifth Street, N.W., Stop 7-3, Washington, DC 20549. C.Osada: 1) be, and hereby is, suspended from association with any broker or dealer for a period of six months, effective on the second Monday following entry of this Order; 2) cease and desist from committing or causing any violation and any future violation of Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; and 3) pay a civil money penalty of $50,000 within ten (10) days of the entry of the Order, by U.S. Postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312, under cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Gregory S. Bruch, Assistant Director, U.S. Securities and Exchange Commission, Division of Enforcement, 450 Fifth Street, N.W., Stop 7-3, Washington, DC 20549. D.Sagiuchi: 1) be, and hereby is, suspended from association with any broker or dealer for a period of six months, effective on the second Monday following entry of this Order; 2) cease and desist from committing or causing any violation and any future violation of Sections 17(a) and 17(e) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder; and 3) pay a civil money penalty of $50,000 within ten (10) days of the entry of the Order, by U.S. Postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312, under cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Gregory S. Bruch, Assistant Director, Division of Enforcement, U.S. Securities and Exchange Commission, 450 Fifth Street, N.W., Stop 7-3, Washington, DC 20549. By the Commission. _________________________ Jonathan G. Katz Secretary