Due diligence insider trading probed

The Securities and Exchange Surveillance Commission urged the Financial Services Agency to fine a Japanese business consultant ¥1.29 million for allegedly engaging in insider stock trading by taking advantage of information obtained conducting due diligence on targets of corporate acquisitions.

It is the first reported case of insider trading based on information illegally obtained through due diligence.

The man worked at a company that is part of the Japanese unit of U.S. accounting giant PricewaterhouseCoopers. An official of the company said it is cooperating with the SESC but declined further comment.

The consultant is suspected of illegally using private information gained while he was in charge of scrutinizing the assets of high-end women's clothier Link Theory Holdings Co.

He bought shares in Link Theory before Fast Retailing Co., operator of the Uniqlo casual clothing chain, announced it planned to launch a takeover bid for Link Theory on Jan. 28.

The consultant sold his shares after the announcement and is believed to have scored at least ¥1 million on the move, sources said.

Link Theory's shares were trading at ¥100,000 on the day before the takeover announcement but jumped to closing prices of ¥167,000 on Feb. 2 and ¥172,000 on March 25.

Companies targeted for mergers or acquisitions provide accounting firms with confidential information so the potential acquirer can conduct due diligence on the deal.