Monex Group Inc. was sued in Japan over the sale of Credit Suisse’s riskiest debt, making the online brokerage a rare case of a financial institution being accused of responsibility for investor losses triggered by Switzerland’s move to wipe out the bonds.
(Bloomberg) — Monex Group Inc. was sued in Japan over the sale of Credit Suisse’s riskiest debt, making the online brokerage a rare case of a financial institution being accused of responsibility for investor losses triggered by Switzerland’s move to wipe out the bonds.
Kojimachi Oodori Sogo Law Office filed a suit Thursday against the firm with the Tokyo District Court on behalf of an individual investor seeking about 22.5 million yen ($161,000) in compensation.
The 62-year-old plaintiff is accusing Monex of having sold him the securities via its business partner Wealth Guardian, without providing any explanation on so-called special viability risks related to the debt, according to a copy of the complaint seen by Bloomberg News.
“It is very irresponsible to create such flawed materials and conduct sales through independent financial advisers,” said Akiyoshi Motosugi, an attorney at the law firm. “We believe this is the first lawsuit questioning the responsibility of a domestic securities company” for the full writedown of CS AT1 bonds.
A spokesperson for Tokyo-based Monex was unable to comment when reached by telephone.
Switzerland’s move in March to write down the bonds of Credit Suisse shocked investors in Japan, who bought around 140 billion yen worth of the debt. Clients of Mitsubishi UFJ Financial Group Inc.’s securities venture with Morgan Stanley took the lion’s share of the hit. The debacle in a country that’s trying to push its citizens to invest more has prompted Japanese regulators to look into whether firms properly explained the risks before selling the bonds.
So far, litigation around the Credit Suisse AT1 bond sales has been directed against Swiss authorities. In May, bondholders in Asia joined more than a thousand others in Europe and the US in seeking damages from the Swiss banking regulator.
A set of written explanatory materials prepared by Monex made no mention of viability events that Credit Suisse warned would lead to a full writedown of the debt should they happen, according to the complaint. The Wealth Guardian employee offered no verbal explanation about them to the plaintiff as he too was reliant on those written materials, the complaint showed.
Those events include extraordinary support from the public sector, based on the bond’s English prospectus. Swiss officials used that provision in proceeding with the wipeout on the Credit Suisse AT1 bondholders, as they engineered a rescue by UBS Group AG.
The sale of the bonds has put the spotlight in Japan on whether financial firms’ employees, whether they are broker-dealers or wealth managers, are fulfilling their duty to offer thorough explanations about products. It comes after Japan’s financial regulator cracked down on the sale of so-called structured bonds after finding inappropriate sales practices.
–With assistance from Nao Sano.
(Updates with details throughout)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.