Daiwa Trader Writes Tell-All Book From Jail

A former star bond trader who lost $1.1 billion at Daiwa Bank writes from his prison cell that managers at the New York branch were so inept he made unauthorized deals in their presence.

“The Confession,” by Toshihide Iguchi, also accuses U.S. and Japanese authorities of sloppy inspections and describes an elaborate cover-up of the losses by Daiwa. The publisher, Bungei Shunju, made the book available to journalists in Tokyo on Tuesday.

Executives in the New York branch of the giant Japanese bank barely spoke English and knew so little about trading, Iguchi says, that he regularly made $100- million unauthorized bond trades on the phone right under their noses.

When a nerve-wracked Iguchi finally told his bosses about the snowballing losses in July 1995, they were merely determined to hide it from U.S. authorities, the book says.

The Daiwa executives advised Iguchi to keep quiet and to destroy the computer disk with his confession, even offering him a position in Japan to keep the scandal under wraps while they figured out what to do, according to the book.

“Everyone agrees that if this becomes a problem in America, we will be in big trouble,” Iguchi quotes an executive as saying.

Daiwa wound up paying a record $340-million U.S. criminal fine for its part in Iguchi’s cover-up. It was forced to close its U.S. operations last year. A former general manager of Daiwa’s New York branch has pleaded guilty to helping the cover-up and was sentenced to two months in prison.

Iguchi, who pleaded guilty to fraud, was sentenced last month by a U.S. District judge to four years in prison, fined $2 million and ordered to pay $570,000 in restitution.

An attorney for Iguchi in New York declined to say how much he was paid for the book. Iguchi will use the money to pay his fines and restitution, said Vincent Briccetti, the lawyer.

“He has financial obligations, and he will meet them,” Briccetti said.

Daiwa Bank declined to comment on the book. Spokesman Keizo Tsujiyama said the bank was not consulted on the project.

Daiwa’s losses rivaled some of the biggest financial fiascoes ever, including $2.6 billion in losses Sumitomo Corp. blamed on its former chief copper trader, Yasuo Hamanaka. The Japanese trading company said in June that Hamanaka, like Iguchi, forged documents to cover up losses from a decade of unauthorized trading. Japanese authorities arrested Hamanaka in October.

Similarly, British investment bank Barings pinned its 1995 bankruptcy on $1.4 billion in trading losses amassed by Nicholas Leeson, a trader in the British merchant bank’s Singapore office who got in over his head trading Japanese bond futures and options. Leeson is serving a 6 1/2-year sentence in a Singapore prison after pleading guilty to fraud.

Iguchi’s 323-page book, due to reach Japanese stores next week, describes how U.S. federal inspectors failed in 1992 to uncover Daiwa’s secret dealing room, disguised as a storage area stacked with cardboard boxes.

The next year, the inspector spent only 15 minutes, instead of the planned two days, at Daiwa’s downtown office, Iguchi says.

When Japanese Finance Ministry officials came to check on Daiwa’s U.S. operations, they were more interested in playing tourist in Las Vegas, Iguchi says.

Officials at Japan’s Finance Ministry and the U.S. Federal Reserve refused to comment on the book or its allegations.

Iguchi, 45, says he scraped his pencils on a cell window frame to sharpen them and filled several pages of prison stationery a day.

“I thought that it would be my social responsibility to reveal the truth about the case, which left a huge stain in Japanese financial history,” Iguchi said in a handwritten statement released by the publisher.

His book is also a painful personal account of an ambitious man’s downfall.

With dreams of success, Iguchi went to an American university and landed a job at Daiwa, after struggling at a Japanese auto dealership and other odd jobs.

Although he acknowledges he pocketed $570,000, partly to buy a cottage in Pennsylvania, his 12 years of cheating at Daiwa proved costly.

Iguchi began to make more dubious trade risks to cover up his huge losses. The losses just grew bigger, forcing him into more illicit trades.

Tired of neglect, his wife left him. His two sons turned to drugs. Iguchi repeatedly thought about suicide. And he felt betrayed by Daiwa after his arrest, he says.

“If this serves as a lesson for many and helps Japan to become more international, I can perhaps feel redeemed that my suffering was not all in vain,” Iguchi writes.