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Dealer arrested as WallStreetBets phenomenon hits Japan

(Bloomberg) – An individual investor buys shares in a small business, promotes their position on social media, and inspires a horde of followers to do the same. The share price goes to the moon – before falling back to earth. It’s an all-too-familiar story to anyone watching the market in 2021, but this wasn’t GameStop Corp. It wasn’t even in America. And it happened in 2018. It was in the Japanese city of Osaka that a day trader known by the nickname Tonpin hit a tiny precision tool and mold maker called Nichidai Corp. and posted this on Twitter, where he has more than 55,000 followers. The stock rose more than six-fold in the first three months of 2018 before losing most of its profits. The person behind the nickname was Toru Yamada, a former money manager, and he and another man were just arrested for market manipulation, according to Japanese media reports. He was arrested not for bringing up the stock on Twitter, but rather on suspicion of keeping the stock price low – although that would have lifted restrictions on margin trading, causing stocks to hit new highs in the incident shows how regulators sift through unusual trading patterns and often come to conclusions years later. This could pique the interest of protagonists and observers of the recent meme stock rally in the US, such as users of the Reddit forum WallStreetBets.Yamada, which has not yet been charged and it is not clear whether it will. And while no one is suggesting that U.S. traders use tactics similar to the ones they allegedly used, the case shows the risks that can be involved in becoming a high profile social media investor. While you’re in the public spotlight, you may also be caught in the crosshairs of regulators: “Everyone will be on their toes,” said Taketsugu Agari, the investor known as Takezo on Twitter, where he has nearly 100,000 followers. “People don’t know what’s right and what’s wrong,” he said. “People don’t know the rules.” Calls and direct Twitter messages to Yamada went unanswered. The Osaka District Procuratorate declined to comment. The Securities and Exchange Surveillance Commission, Japan’s market observer, was not immediately available for comment. According to local media reports, the prosecution did not make it clear whether the men had approved or denied the charges. A regulatory filing shows that Yamada’s first disclosed purchase of Nichidai shares was on December 8, 2017 and he was gradually increasing his stake. When he first tweeted about it on February 1 of the next year, stocks had nearly tripled. In March of this year, Yamada and another man placed a large number of sell orders below market price reports shortly before the close of trading, according to media reports. Their intent was to keep the stock price below a certain level to ensure that restrictions on new margin trading on the stock were lifted, the reports said. The stock was exempt from the measures and rose up to 18% on March 12 on its next trade. In a tweet on March 10, Yamada appeared to be discussing this process, showing screenshots of Nichidai trades just before the close of trading, although this is unclear aside from his arrest, Yamada has had a lot of arguments on Twitter over the years over his discussions about his investments. “The authorities need to put some regulations in place,” said Soichiro Iwamoto, a longtime trader whose company gives new advice to investors, said in an interview about the practice of talking stocks on social media. “The investors here don’t have enough financial knowledge.” Others wondered what exactly Yamada had done wrong. “It is amazing that selling to lift margin restrictions is being treated as market manipulation,” Akira Katayama, a busy day trader named Gogatsu, wrote after his arrest. Japanese retail investors have advocated the country’s thousands of thinly traded stocks online for more than a decade, starting with the bulletin boards popular in the mid to late 2000s before moving to Twitter, the dominant platform in recent years. Locust Lords “are known to attract a swarm of day traders. Yamada was the last of the Lords to fall silent in June when he said he was taking a break from Twitter after his account was briefly suspended. Okansanman, an anonymous account with 175,000+ followers and known for its quick delivery of Breaking News, went dark in early 2019 and has not re-emerged. Mysterious Twitter user Drawing a Swarm of Japan TradersYamada worked for two Chinese state funds before starting day trading in Japan in 2013, he told Bloomberg News last year. He shared the opinion on Twitter even before his arrest with devoted followers who copied his deals and others who accused him of being a manipulator, and used his influence to pump up stocks before they were dumped. “When a lot of Japanese lose, they want to blame it on someone else,” he said last year, wiping off his critics. Followers may have to wait to learn of Yamada’s fate. Under Japanese law, he can be held for up to 23 days before charges are brought. Meanwhile, many of his colleagues in the country who enjoy discussing stocks are moving from Twitter to other places, including encrypted messaging apps like Line and new platforms like Clubhouse, according to investor Agari. That makes it harder for regulators to monitor, he said. Read More: GameStop Frenzy Is Lost In Translation For Japan’s Day Dealers. If the Japanese experience matters, regulatory action may be a long time coming, if it happens at all. “This has been so for over a decade, since people have used bulletin boards,” Agari said, referring to retail investors talking about stocks online. “America is starting to look like Japan.” (Updates with more details) For more articles like this, visit Sign up now to keep up with the most trusted business news source. © 2021 Bloomberg LP