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Traders arrested when WallStreetBets phenomenon hits Japan

(Bloomberg) – A single 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. In the Japanese city of Osaka, a daytime trader known by the nickname Tonpin met a tiny precision tool and die maker named 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 earnings. The person behind the nickname was Toru Yamada, a former money manager, and he and another man were arrested for market manipulation, according to Japanese media reports. He was arrested for not addressing the stock on Twitter, but rather on suspicion of keeping the share price low – although that would have lifted restrictions on margin trading and stocks would have 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 indicted and it is not clear whether it will. And while no one is suggesting that US traders use tactics similar to those they purportedly used, the case shows the risks that can be involved in becoming a well-known social media investor. While you’re in the public spotlight, you may also find yourself 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, prosecutors did not make it clear whether the men 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, according to media reports, Yamada and another man placed a large number of sell orders below market price reports shortly before the close of trading. Their intent was to keep the stock price below a certain level to ensure that restrictions on trading new margins on the stock were lifted, the reports said. The stock was exempt from the measures and rose to 18% on March 12 on the 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 apart from his arrest, Yamada has had many clashes on Twitter over the years over his discussions about his investments. “The authorities need to put some regulations in place,” said Soichiro Iwamoto, a long-time trader whose company is newly advising investors, 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,” wrote Akira Katayama, a busy day trader named Gogatsu, after his arrest. Japanese retail investors have endorsed the country’s thousands of thinly traded stocks online for more than a decade, starting with bulletin boards popular in the mid to late 2000s, before moving to Twitter, the dominant platform in recent years. Locust Lords ”are known for attracting 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 momentarily 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 reappeared. Mysterious Twitter user Drawing a Swarm of Japan TradersYamada worked for two Chinese sovereign wealth funds before starting a day trader in Japan in 2013, he told Bloomberg News last year. He shared his views 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 leverage to pump up stocks before they were dumped. “When a lot of Japanese lose, they want to blame 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 difficult for regulators to monitor, he said. Read More: GameStop Frenzy Gets Lost In Translation At Japanese Day Traders When the Japanese experience is a factor, regulatory action can take a long time, if at all. “It’s been like that for over a decade since people started using bulletin boards,” Agari said, referring to retail investors who talked about stocks online. “America is starting to look like Japan.” (Updates with more details) For more articles like this one, visit bloomberg.com. Sign up now to stay up to date on the most trusted business news source. © 2021 Bloomberg LP